Call Lipp Law: (703) 896-7704
Call Lipp Law: (703) 896-7704
Losing a job can be one of the most stressful moments in your career. You may be trying to understand why your employment ended while simultaneously thinking about your finances, health insurance, family, and what comes next.
Then your employer hands you a severance agreement and asks you to sign it.
It can be tempting to focus on one question: How much severance am I getting?
But a severance agreement is about much more than the payment. By signing it, you may be giving up potential legal claims, agreeing to restrictions that affect what you can do next, and accepting obligations that continue long after your employment ends.
Before you sign, take the time to understand both what you are receiving and what you are giving up.
This severance agreement review checklist can help you identify some of the questions to ask before making your decision.
This article provides general educational information and does not constitute legal advice. Employment laws and individual circumstances vary. For advice regarding your specific situation, consult an employment attorney licensed in the jurisdiction where you worked.
When reviewing a severance agreement, don’t look only at the dollar amount. Consider the entire agreement and how its provisions may affect your finances, legal rights, reputation, and next career move.
Here are some of the issues to review:
First, determine exactly how much time you have to consider the agreement.
Don’t assume you need to sign immediately simply because you want to put the termination behind you. Depending on your age and the circumstances surrounding the termination, federal law may provide specific consideration and revocation periods.
Employees age 40 and older should pay particular attention to requirements under the Age Discrimination in Employment Act (ADEA) and Older Workers Benefit Protection Act (OWBPA). Your employer must have at least 20 employees to be subject to the ADEA/OWBPA.
Also look for:
If you’re considering having an attorney review the agreement, don’t wait until the final day to seek advice. Sometimes, an attorney can negotiate an extension of the severance agreement, but not always, so time is of the essence.
Confirm that the agreement accurately identifies your final date of employment.
Your separation date can affect your final paycheck, benefits, bonuses, commissions, equity, and other compensation.
You should also determine when your health insurance and other employee benefits end. Depending on the employer’s plan, coverage may end on your final day or continue through another specified date.
Review exactly how much severance your employer is offering and how it will be paid.
Questions to ask include:
There is no universal formula that determines what every employee should receive as severance. The appropriate analysis depends on the employee, employer, existing agreements, circumstances surrounding the termination, and applicable law. Usually, an employer offers severance if the termination was unexpected, not performance-related, if there is a written severance plan, or if the employer sees a high amount of legal liability surrounding the termination.
Severance pay should be distinguished from compensation or benefits you may already be entitled to receive.
Depending on your circumstances and applicable law, consider:
Review your offer letter, employment agreement, compensation plans, commission agreements, employee handbook, and other relevant policies when evaluating these issues.
For many employees, continued health insurance is almost as important as the severance payment itself.
Determine:
Payment or reimbursement of COBRA premiums may sometimes be part of a severance negotiation.
If maintaining health coverage is particularly important to you or your family, don’t overlook this issue while focusing on the severance payment.
For executives and other highly compensated professionals, some of the most valuable issues may fall outside base salary.
Review what happens to:
Pay particular attention to deadlines associated with exercising stock options or making other post-employment decisions. If substantial compensation or equity is involved, you may also want advice from a tax or financial professional.
This is one of the most important provisions in most severance agreements.
In exchange for severance, an employer will typically require the employee to release certain legal claims against the employer and related individuals or entities.
That means you should understand what potential rights or claims you are agreeing to give up before you sign.
Depending on the circumstances, potential claims might involve issues such as discrimination, retaliation, harassment, unpaid compensation, contractual rights, or the circumstances surrounding the termination.
The existence of a severance offer does not mean that your employer violated the law. Likewise, believing your termination was unfair does not necessarily mean that you have a legal claim.
The important question is whether you understand your individual circumstances and the rights affected by the release before making your decision.
Read the agreement carefully for restrictions affecting what you can do after leaving.
A severance agreement may contain new restrictions or incorporate restrictions from an earlier employment agreement.
Look for:
These provisions can affect where you work, whom you contact, and what you can do in your next role.
Restrictive covenant law varies significantly by jurisdiction, so employees should be particularly careful about assuming that a provision is either automatically enforceable or automatically unenforceable.
If an existing restriction could interfere with your next job, severance negotiations may provide an opportunity to ask the employer to narrow, clarify, or release the restriction.
Many severance agreements include confidentiality and non-disparagement provisions.
Read these carefully.
Ask:
The language matters. You want to understand your obligations before you agree to them.
Your professional reputation matters, particularly when you are beginning a job search.
Consider whether the agreement addresses:
In some circumstances, employees may negotiate an agreed-upon reference or communication regarding their departure.
Severance agreements frequently require employees to confirm that they have returned company property.
That can include:
Make sure the timeline is workable and that you understand your obligations regarding electronic information and personal files.
Do not take or retain company documents or confidential information simply because you believe they may be useful later. If you have concerns about preserving evidence relating to a potential legal claim, speak with an attorney about how to handle the situation appropriately.
Your severance agreement doesn’t necessarily replace everything you signed during your employment.
Review whether previous agreements remain in effect, including:
You need to understand not only what the new agreement says, but also which previous obligations may survive your termination.
Don’t skip the provisions explaining what happens if either party violates the agreement.
For example:
These provisions may look like boilerplate, but they can have significant consequences.
Sometimes.
Employees occasionally assume that because an employer presented a written agreement, every term is final. That isn’t necessarily the case.
Whether negotiation makes sense—and which terms are realistic negotiation targets—depends on the circumstances.
Potential negotiation points can include:
Effective severance negotiation isn’t simply about asking for more money. The goal should be to identify the terms that matter most to your particular transition and future.
For one employee, that may be additional compensation. For another, health insurance may be the priority. For an executive moving immediately to another company, narrowing a restrictive covenant may be significantly more valuable than another week of severance pay.
A severance review should include more than reading the four corners of the agreement.
An employment attorney reviewing a severance package may also want to understand what happened before the employee was terminated.
For example:
None of these facts automatically establishes a legal claim. But the circumstances surrounding the termination can be important when evaluating what an employee may be giving up by signing a release.
Federal law provides specific protections relating to waivers of age-discrimination claims by employees age 40 and older. Your employer must have 20 or more employees to be subject to the Age Discrimination in Employment Act (ADEA), the federal law regarding age discrimination.
The Older Workers Benefit Protection Act establishes requirements that must be satisfied for certain waivers of claims under the Age Discrimination in Employment Act to be considered knowing and voluntary.
Depending on the circumstances, these requirements may include specific language, a period in which to consider the agreement, a recommendation to consult with an attorney, and a period in which the employee can revoke the agreement after signing.
Additional requirements may apply in connection with certain group termination or reduction-in-force programs.
Because the requirements are technical and depend on the circumstances, employees age 40 and older should carefully review both the agreement and any accompanying disclosures.
If your termination is part of a larger layoff, additional considerations may apply.
For example, the federal Worker Adjustment and Retraining Notification (WARN) Act may require advance notice for certain covered plant closings and mass layoffs involving covered employers. State or local laws may provide additional protections. To be covered by the WARN Act, an employer must have 100 or more employees.
Whether these laws apply depends on specific facts, including the employer, number of affected employees, work location, and circumstances of the layoffs.
Employees affected by a reduction in force should also review any information the employer provides concerning the selection process and, where applicable, disclosures accompanying an age-discrimination waiver.
Not every severance agreement requires extensive negotiation or litigation. Sometimes the most valuable outcome of a legal review is simply understanding the agreement and having confidence in your decision.
An employment lawyer can help you:
The objective isn’t necessarily to turn every termination into a dispute.
It’s to help you make an informed decision about an agreement that may affect your finances, legal rights, reputation, and career.
Before signing your severance agreement, ask yourself:
If you can’t confidently answer those questions, consider getting additional information before signing.
A job ending can affect far more than a paycheck. It can affect your finances, your family, your professional identity, and your plans for what comes next.
You don’t need to understand every provision of a severance agreement the moment it lands in your inbox. But you should understand it before you sign it.
Taking the time to review the agreement, ask questions, and understand your options can help you approach your next decision with greater confidence and clarity.
Lipp Law helps executives, educators, professionals, and other employees throughout Virginia, Maryland, and Washington, D.C. navigate workplace transitions, including severance agreement reviews and negotiations.
If you’ve received a severance agreement and would like to understand what you’re being offered, what you may be giving up, and whether there are terms worth negotiating, contact Lipp Law to discuss your situation before your signing deadline.
Katie dedicates her practice to employment separation guidance.
Based on her successful employment litigation practice...Read More
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