Sometimes when leaving a job, an employee will be asked to sign a separation or severance agreement. The agreement usually involves an employee agreeing to give up certain rights or agreeing to do certain things in order to receive compensation to which they may otherwise not be entitled. Here are a few things to watch out for when looking at signing such an agreement with an eye to the employee’s situation.
- Leverage and negotiation: Separation and severance agreements can be standardized or they can be tailored to the needs of a particular employee. When the separation is part of a mass reduction in forces it may be harder to get the employer to negotiate the terms of the agreement. Employees gain leverage in negotiating severance or separation agreements from a number of places. Most frequently, the employee has a potential claim against the employer for something like discrimination or unpaid overtime. The stronger the potential claim, the more leverage the employee has. Another situation where the employee may have leverage is where the employer needs the employee’s help in the future. For example, the employer may need the employee to train replacements or may need the employee to testify in some other unrelated legal action. An important point to remember is that an employer can withdraw a separation or severance offer at any time before the employee accepts that offer.
- Know about all the potential benefits to which you may be entitled: Before starting any negotiations you need to be fully aware of all the benefits that you may be owed. These can include things like pensions, vested 401k matching contributions, sick leave and vacation days, and other possible benefits. Be sure to read benefit and account statements, plan documents, and summary plan descriptions. You want to make sure you don’t miss any vesting opportunities or the possibility that the company is letting you go in order to try prevent you from vesting.
- Reciprocity and Mutuality: An employer may require an employee to agree to a number of conditions in order to receive severance or separation payments. Common requirements are non-disparagement clause and releases. Sometimes the employer may make these clauses onerous and unfair to the employee. Requiring mutuality and reciprocity can help to avoid one sided terms. What’s good for the goose is good for the gander!
- Accrued vacation or other leave pay: You may be entitled to the cash value of accrued vacation or other leave pay. Some states have laws that provide an employee must be paid accrued leave. Other states do not have such laws. That is one reason why it is important to talk to an employment lawyer in your jurisdiction. Check to see what the employer’s manuals, handbooks, and policies say.
- Cashing other benefits: If certain benefits offered in the package are useless or unimportant to you, it may be possible to get at least part of the value of those benefits in cash. The package may offer employment placement services, or medical benefits that you won’t use because of coverage through your spouse. You may be able to get the employer to pay you part of the cash value in lieu of taking advantage of the services.
- References: Employees often want to make sure that they will receive at least a neutral reference. Agreeing on the language of a reference letter may be a good way to alleviate any concerns. Parties may also agree to language for oral references. The default language is typically limited to confirming the employee’s dates of employment and the last position held.
- Tax Issues: Severance payments and other benefits may trigger complicated tax issues. It is important to consult with a tax lawyer or other tax professional before signing any agreement.
- General Release: In return for signing a separation or severance agreement, an employee will typically be asked to sign a general release or to release specific claims. Signing a release will usually mean you can not sue over anything that may have happened to you in the workplace prior to the signing of the release. It is important to talk with an employment attorney to make sure that you are not signing away your right to sue over something important.
- Non-Compete and Confidentiality Agreements: Non-compete and confidentiality agreements are common parts of a severance or separation agreement. There are laws that shape what is and is not acceptable in a non-compete or confidentiality agreement. Most of this law is based on state laws so it is important to talk to an employment lawyer in your state about the enforceability of any agreement you are being asked to sign. It may be that provisions of the non-compete or confidentiality agreement would not be enforced in court even if you signed them.
As Always, make sure to talk to an attorney in your jurisdiction before signing any separation or severance agreement. Attorney Benjamin Kandy is barred in the State of Georgia and is available to answer all your questions about separation and severance agreements.
This is not legal advice. This advice does not create or imply any attorney-client relationship.