JUN 14, 2024

Severance Agreements – What To Consider Before Signing One And Why You May Be Entitled To Severance And Not Even Know It

In the last few months, there have been a surge of layoffs in just about every sector, from tech to finance to startups. When I represent employees who have been impacted by a layoff, I often see them waive rights or benefits they didn’t even know they had. It’s important to speak with a knowledgeable employment attorney to see what you could be waiving by signing a severance agreement. Here are some key questions to ask yourself:

• 1. Do you have stock options or shares in the company? Sometimes, employers will terminate you close in time to when your shares are going to vest to avoid paying out the value of the shares. If you are faced with this scenario, see if your employer will let your shares vest.

• 2. Do you have a pension? Is it included in your severance agreement? Confirm that you are not waiving your pension rights. If your employer was matching your contributions to your 401(k) and these are not vested, then you may lose a portion of your 401(k).

• 3. Do you have insurance? Employers will sometimes pay your COBRA payments, in part or in full sum, to cover you while you are not working. The effects of the severance on your insurance benefits should be made clear to you.

• 4. Did you sign a non-compete agreement when you accepted the position? If not, and the employer is adding a non-compete clause to your severance agreement, then it could hinder you from pursuing other job opportunities. Your severance pay should cover the time limit of the non-compete agreement, otherwise it would be inadvisable to sign the agreement, except if you are planning to work in a different industry. However, if you did sign a non-compete agreement when you accepted the position, it would be best to consult with a lawyer to understand the provisions of the non-compete agreement before signing the severance agreement. Make sure that your employer does not add any further restrictions, such as extending the time or geographical range of your original non-compete agreement.

• 5. Does the agreement include a non-disparagement clause? If it does, it should be mutual. If the employer does not want you to say bad things to their clients, their competitors, or to others in the industry, then they should extend the same conditions to you. You do not want your former employer to make comments that could negatively impact your next employment.

• 6. Does the agreement include a confidentiality clause? A mutual confidentiality clause will prevent both yourself and the employer from releasing information about your severance. This would protect you and ensure that future employers will not be able to gain information about the details of your severance.

• 7. Does the agreement include a release clause? Mutual releases will protect both yourself and the employer from making any claims against each other. It is not unheard of for an employer to provide a one-sided release clause and then sue their former employee afterwards. Always make sure that you are also protected. There are usually exceptions for undiscovered financial fraud/embezzlement, which would be fine. However, if the employer knows about it upon providing the agreement, they should be willing to release the allegations, or alternatively, they should waive their right to a release.

• 8. The release contained in your severance agreement will likely contain a full waiver of claims which includes claims of discrimination and sexual harassment. Before you sign a severance agreement, ask yourself the following questions. You may have a claim against your employer if you answer any of the questions below in the affirmative.

• • a. Was I terminated by virtue of being in a protected category such as race, age, sex, national origin, marital status, LGBTQ+, gender, or disability where others not in my protected class remain employed?

• • b. Was I retaliated for taking medical leave, sickness, disability and not allowed to return from leave or terminated shortly after returning from leave?

• • c. Was I terminated for reporting discrimination, sexual harassment, or illegal activities inflicted upon myself or upon others in the workplace?

• • d. Was I not receiving overtime pay or correct and timely wages?

• • e. Was I pregnant?

• • f. Was I over 40 years of age? Was everyone else who had been laid-off or made redundant also over 40 years of age?

• • g. Was I subpoenaed to testify against my employer or in any court case?

• • h. Was anything from my employment contract, or any other contract with my employer, breached?

• • i. Was I injured at work and making a worker’s compensation claim?

If you feel that you have a potential claim against your employer or the severance agreement presented to you is infringing on any of your rights, our office is available to provide legal consultation.

My office is also available to assist your business in implementing the new laws in effect. Please make sure to subscribe to this blog to receive email alerts about new laws which may impact your business.