This episode of the Employee Survival Guide discusses a very important topic of how to negotiate a severance package with your employer. Your host Attorney Mark Carey will run you through his tactics and strategies of how to negotiate a successful severance agreements. Mark’s knowledge covers more than 24 years negotiating severance employment agreements for employees and executives.
For more information about this topic, please contact our employment attorneys at Carey & Associates, PC at 203-255-4150 or email to email@example.com. Thank you for listening.
By Fran Slusarz,
It happens in every economic downturn. Companies that are doing just fine, thank you, go through rounds of layoffs to the cheers of Wall Street. Their stock value goes up because they cut expenses, and there’s no real consumer or job market backlash. So many companies are laying off workers that no one can keep track of which ones were on the brink of insolvency and which ones were riding the wave.
We see it in news and our firm has seen it in the calls we’ve gotten in the last few weeks. Last week, for example, IBM announced that it is laying off an undisclosed number of workers. Its CEO made a statement last month about uncertainty caused by COVID-19, but IBM’s current stock price is only about 6% off its price from one year ago today, and up nearly $30 per share from its low point on March 23, 2020. Bicycle shops across the US have backorders and waitlists they’ve never seen before, but we know of significant layoffs by manufacturers.
So what’s an undisclosed number of layoffs in the vast ocean of 38.6 million unemployed Americans?
I try to avoid falling into the trap of absolutes. Businesses exist to make money, so how can you fault them for doing so? Except, there is something patently unfair about firing people for no good reason at all. And mean-spirited about doing it at a time when it will be difficult for your former employees to find another job. And vulgar about using a the economic fall out of a global pandemic to deflect attention from their own opportunistic behavior.
If our Supreme Court says that corporations can have the religious beliefs of the humans who own them, then shouldn’t we expect them to behave ethically with regard to the humans who serve them?
Fortunately, some in business are beginning to recognize that “Greed is good,” isn’t the best of all possible worlds. The Business Roundtable, an association of CEOs from America’s largest companies, recently updated its Statement on the Purpose of a Corporation to recognize the company’s role in serving all stakeholders – shareholders and employees alike. If more companies adopt this approach, maybe we can disincentivize these parasitic layoffs. Maybe we can minimize the effects of economic downturns overall.
If you would like more information about whether your layoff was illegal, please contact our employment attorneys at Carey & Associates, P.C. or send an email to firstname.lastname@example.org.
A record 22 million people were laid off in one month since the coronavirus pandemic shut down large portions of the U.S. economy as of the week ending April 16, according to the Wall Street Journal. The estimated current employment rate is 13.5%. But were all those layoffs really due to the corona virus or did employers use the pandemic as cover to get rid of employees for other reasons, maybe unlawful reasons. This is the big question many unemployed Americans are now asking. Please review the following frequently asked questions and see which applies to you.
FAQ: Were you recently furloughed, laid off, demoted or terminated due to COVID, but your co-workers remain employed?
FAQ: Is your Employer still operating and profitable, yet you were laid off or had your compensation reduced due to a business decision to reduce costs or eliminate your job position?
FAQ: Were other younger employees retained, while you were furloughed, laid off, demoted or terminated?
FAQ: Were you laid off or terminated and not offered any severance or insufficient severance?
FAQ: Were your unemployment benefits interfered with?
FAQ: If you were unable to continue to work because you were sick, because a family member was sick or because you have young children at home, were you permitted to take FMLA leave or were you instantly laid off or terminated?
FAQ: Were you the only one furloughed, laid off, demoted or terminated or due to COVID, even though your Employer is calling it a “reduction in force”?
FAQ: Do you think your Employer was looking for an excuse to get rid of you?
If you answered yes to any of the above, your seemingly straightforward COVID-based termination may be unlawful. Unfortunately, the majority of Employees in the U.S. are “at-will”. This means that employees are at the absolute and arbitrary whim of their employers and they may be demoted, terminated or otherwise treated adversely for any reason or no reason at all. The exception to the anything goes rule of an at-will employment arrangement is that employees may NOT be treated unlawfully.
If you have recently suffered an adverse change in the terms and conditions of your employment amidst the COVID-19 crisis, you may still have viable claims against your employer for unlawful or wrongful treatment. COVID-19 is not and should not be a catch-all excuse or defense for employers’ bad behavior and even a crisis of this magnitude does not relieve employers of their obligation to treat employees lawfully at all times. If something does not feel right to you about the circumstances of your change in employment, it is prudent to speak to an employment attorney and review the fact pattern surrounding your work situation. It is in your best interest to discern whether your employer may be using COVID-19 as a sham or cover for otherwise unlawful behavior.
Unlawful or wrongful acts that may entitle an employee to monetary damages for claims against their employer will usually fit in one of three scenarios. Employers actions can be shown to be unlawful if they:
1) violate or fail to comply with any legislative mandate, act or
2) breach a valid contract or agreement; or
3) discriminate, harass or retaliate based on a protected class trait.
COVID-19 does not give employers a green light to violate laws, ignore contracts or discriminate against employees, and a termination under any one of those scenarios might be a wrongful one.
Scenario 1 – Statutory Violations:
Employers must abide by all existing laws and statutes, especially as they apply to the COVID-19 pandemic. It is the employers’ obligation to stay abreast of and comply with all new mandates imposed and legislation enacted in response to COVID-19, including, but not limited to enhanced FMLA, the CARES Act and the expansion to the Unemployment Compensation Act. This is in addition the existing laws that have long protected employees from discrimination and retaliation such as Pregnancy, Sex Harassment, Sexual Stereotype, Disability, Age, Whistle Blowing and Family Medical Leave, to name just a few. Thus, any analysis of whether your termination was lawful and proper should begin with a review of the facts relative to the controlling law and any revisions and updates to those laws. If you identify any facts in the events leading up to your termination that just do not seem right, you may have uncovered the hidden basis for your termination. For example, you got a good review last fall and received a bonus in January, but in March you were terminated without explanation. The small window between the January bonus and March termination should be closely examined for any facts supporting bogus performance issues, favorable treatment given to other employees and not you and replacement by coworker who is substantially younger and lesser qualified. The examples are endless, but you get the gist. See further discussion below.
Scenario 2 – Breach of Contract:
Even an at-will employment arrangement must be considered in light of any existing employment contracts or agreements between the employer and employee. In addition to or in the absence of a formal written employment contract, Courts may look to such documents as offer letters, on-boarding communications, employee handbooks, published severance plans and emails in order to demonstrate the existence of any enforceable covenants between the parties that may speak to such topics as causes for termination, compensation, bonus, healthcare, long term incentive compensation and severance. Thus, where a valid contract can be established as to any of your employment terms, your employer is bound by those terms and any deviation may be an unlawful breach for which you might be able to seek and recover damages. So, if you have been terminated or otherwise caused to separate from your employer, even if you are at-will and even amidst the COVID-19 crisis, it is imperative that you review all of your documents in order to discern that you are being treated lawfully according to the terms that were agreed upon and promised to you.
Scenario 3 (THIS IS THE BIGGIE) – Discrimination Claims:
Even if you are an at-will employee who was let go as a result of COVID-19, you may still have a claim for wrongful termination against your employer if their decision to let you go was at all based on discriminatory motives. Discrimination is unlawful and where an adverse act is taken against you because of such protected traits as your age, gender, pregnancy, race or national origin, disability, perceived disability, associational disability or sexual orientation, you may have legal claims against your Employer.
In the absence of direct evidence of discrimination or the smoking gun as we call it, discrimination can be shown if you are a member of the protected class and you were treated adversely (demoted, furloughed, laid off or terminated) under circumstances which give rise to an inference of discrimination, i.e. circumstances that show discrimination was the substantial motivating reason for the adverse act taken against you. The way an employer can defend itself against such a claim and rebut that inference is to show that there was a “legitimate” lawful reason for the termination, such as performance issues and other cause such as a business decision or reduction in force.
Certainly, you can all see where this is heading. COVID-19 and the related financial fallout provides your employer with the legitimate business reason it needs to “lawfully” terminate you. However, this cannot be accepted at face value. In fact, if you are able to show that the supposed legitimate reason relied on by employer was a sham or cover for discriminatory motives, you may prevail on your claims against them in a severance negotiation. There are surely many situations where an employer, especially during these challenging economic times, needs to make a tough business decision to lay off employees or institute a reduction of force, and where their decision to do so is legitimate and truthful.
Employer May Have Used Covid-19 As An Excuse to Fire You
However, there are also many instances where certain employees are selected within the context of a business decisions, based on discriminatory motives. For example, the company makes the “business decision” to lay off only the older employees, or only the female employees or only the pregnant employees. In addition, there might not even be any explicit or formal business decision to reduce costs or a effectuate a reduction in force, but your employer may still feel safe engaging in discriminatory behavior knowing or hoping that any terminations taking place now will be viewed as a necessary and legitimate, due to the Covid-19 business climate. Again, we cannot allow employers to use this catch-all defense to what maybe culpable and unacceptable discriminatory behavior. If you see something, say something to an employment attorney.
There is no doubt that both employers and employees are presently finding themselves in the most difficult and tenuous circumstances. However, employers, in response to COVID-19, seemingly have absolute power and new founded legitimacy to make discriminatorily targeted employment decisions against their at-will employees, under the guise of a business decision. And this is very concerning and unlawful. If you are in a protected class because you are over the age of 40 or fall into any of the other class of protected traits discussed herein, and have seen a change to your employment that you do not believe was made as the result of a good faith business decision, cost reduction, reduction in force in response to COVID-19, or other legitimate basis, we encourage you to speak to an employment attorney immediately. You may be entitled to reinstatement, severance or increased severance or settlement dollars relative to your discrimination claims for wrongful termination or other possible improper acts by your employer.
Carey & Associates, P.C. is currently providing complimentary consultations for potential new clients who are experiencing any employment related issues or believe they might have possible employment claims, as a result of the COVID -19 pandemic. Feel free to contact our office if you need help with that or any of your employment matters.
The issue is not if the Coronavirus will impact your employment but when it will. If you contract the Coronavirus or you are quarantined due to a family member having the illness, you need to know the following important pieces of information to protect yourself.
1. Having the Coronavirus is a Disability and You Are Entitled to Protections
If you are diagnosed with the Coronavirus, you will have a physical disability pursuant to state and federal law. Generally, any impairment of your major life functions is considered a disability and it appears that the Coronavirus is so severe it can become fatal in a short period of time. An employer who discriminates against an employee who contracts the Coronavirus may be liable under disability laws. Also, you should request a reasonable accommodation for a disability leave of absence to quarantine yourself and seek medical assistance. Your employer has an obligation to discuss your accommodation, albeit after they order you not to come to the office until you recover.
State and federal disability laws also protect employees who are “regarded as” having the Coronavirus but have not been diagnosed yet or do not even have the virus. The medical community has only indicated the early signs of the Coronavirus mimic flu symptoms and you will not know which illness you have until you have been tested. The idea here is that disability laws seek to address discriminatory biases held by employers who speculate a person has a disability but are unsure about the truth of the employee’s medical situation.
Finally, the disability laws also protect employees “associated with” individual family members who have the Coronavirus. If you are fired out of fear that your family member infected you, you are protected against discrimination and unlawful termination, even though you never contracted the illness.
2. You May Have Rights Pursuant to the Family Medical Leave Act
If you contract the Coronavirus, and you have worked a significant number of hours in the past year, you may be entitled to take time off, paid in some states like New York and soon Connecticut. You will be entitled to 12 weeks or more and your job will be protected. However, you have to come back to work before the expiration of the FMLA leave or your employer will terminate you. This leave of absence overlaps with the disability accommodation request above. A good an employment lawyer will know how to navigate this for you.
3. You May Be Entitled to Short Term and Long Term Disability Benefits
You may also be entitled to paid time off under your employer’s short term and long term disability benefits plan. Again, this disability leave of absence overlaps with the disability and FMLA leaves of absence. In order to qualify for benefits, you need to apply for them through your Human Resources Department and demonstrate, via supporting medical documentation, you are totally disabled. Given the severity of the Coronavirus, you will certainly qualify as having a total disability. The grey area will be in those cases where the symptoms of the virus are not as severe and you recover within a matter of weeks. If you recover, and hopefully you do, the STD and LTD benefits will only be paid for the period of your disability. You would need to return to work after your recovery, but an employment lawyer will guide you through this process.
4. You May Be Entitled to Workers Compensation
If and only if you contract the Coronavirus while at work, can you file a claim for workers’ compensation benefits. This type of claim takes longer to collect from the insurer, but more importantly, it may bar you from recovery under other state laws but not federal laws. Federal laws will always preempt state law claims.
5. You May Be Entitled To Severance If You Are Terminated
If you are terminated for contracting the Coronavirus, regarded as having the virus or associated with a family member who has it, you should consider hiring an employment attorney to attempt to negotiate a severance package with your employer. Your employer may already have a severance plan which pays out benefits, i.e. weeks of salary for years of service, and you will need to sign a waiver and release of claims, aka settlement agreement. An employer will want to avoid any connection to accusations that it fired an employee for having the Coronavirus; it just does not seem fair and the right thing to do.
If you would like more information about this topic and need to speak to an employment attorney, please contact Mark Carey at email@example.com or call Carey & Associates, P.C. at 203-255-4150.
1. Every Severance Agreement Must be Negotiated
A severance agreement is NOT an agreement until you sign on the dotted line. Until then, it is a severance OFFER. And as with all offers, it can be negotiated. If you are presented with a severance offer at work, either at the start of or upon separating from your employment, it is crucial that you have an employment attorney weigh in. The language in the agreement is just as, if not more, important than the severance dollar amount being offered to you. But both the dollar amount and covenants therein can be and should be reviewed and negotiated so that the agreement is as optimal as possible for you. Because Connecticut is an “at will” employment state, employers can terminate you for any reason or for no reason (as long as it is not an unlawful reason) and they are under no obligation to provide you with any severance (unless they have an express written severance policy or agreement with you already in place). Knowing this, if an employer first presents you with a severance offer at the time of your departure, it usually means they want something significant in return from you, such as a full general release or a non-compete. That is where the leverage for you to negotiate certain elements of the agreement, including, but not limited to the amount of severance money on the table comes into play.
Bottom line: Severance agreements are not take it or leave it offers, but can be and should be negotiated in order to best protect you and compensate you for your loss of job.
2. Resist Signing the Severance Agreement and Speak To An Employment Attorney
A severance agreement can be a springboard to a settlement agreement with your former employer. Although when first presented to you, a severance agreement is designed in theory to essentially compensate you for any gap in income between your prior job and your next job, it can also serve as a settlement agreement to compensate you for claims that you might have related to an unlawful or improper termination. Although Connecticut is an “at will” employment state and your employer can terminate you without cause, the employer is NOT permitted to terminate you for an unlawful cause such as discrimination or retaliation, or for a breach of an employment contract that provides a certain duration of employment or that spells out certain circumstances under which you may or may not be terminated from your employment. If you believe that your termination was in some way improper or unlawful, then it is important to immediately speak to an employment attorney. It is often the case that with a skilled employment attorney taking the reins, your severance offer can be negotiated into a settlement offer that will compensate you for your legal claims. In many instances, where there are valid legal claims underlying a wrongful termination. We are successful in reaching settlements for our clients during the severance review period, which translates into settlement dollars that exceed the measly severance offer first presented to you.
Bottom line: If you believe your termination was motivated by discrimination or retaliation, or other improper acts, do not rush into signing a severance agreement and seek out an employment lawyer to understand your options for pursuing a settlement or litigation to recover all damages available to you for your legal claims.
3. Know What You Are Getting (Golden Handcuffs) for The Severance Money
Whether you are about to enter into a settlement or a severance agreement, you must understand that this is a quid pro quo and that any monies being offered to you do not come freely. In return for a settlement or severance pay out, you will be asked to agree to certain covenants, referred to as restrictive covenants. The restrictive covenant to be most mindful (SCARED) of is a non-compete. If you accept the settlement or severance offer and execute the agreement with your former employer, you will be bound by all of the terms of the agreement and any breach of any term in the agreement is a breach of contract. As such, if there is a breach, you would be subject to damages which might consist of having to return the severance or settlement dollars or even to pay a pre-determined monetary penalty (known as liquidated damages). Therefore, it is crucial you understand what these covenants mean, how they restrict you and what you must do going forward in order to comply with the contract terms. Ideally, your agreement will not contain a non-compete and we take great efforts to remove those from our clients’ agreements or to narrow their scope and impact. But the first step is for you to be aware of and comprehend the relevant restrictive language. In essence, a non-compete will prohibit you from earning a living in the same field for a certain amount of time and usually within a certain geographic territory. This can be devastating and should be avoided at all costs. There are additional restrictive covenants such as non-solicitation, confidentiality and non-disparagement clauses, which too must be addressed and negotiated so that you are adequately protected from a potential breach down the line.
Bottom line: You must be very aware of what you are giving in return for the money you are getting and there are certain gives, such as a non-compete, that we negotiate and attempt to narrow or ideally remove from these agreements.
4. The Severance Agreement Must Contain Terms That Are Mutual to Both Parties
Confidentiality and disparagement are additional boiler plate clauses often added to these agreements and are almost always first presented as a unilateral restriction on the employee receiving the settlement or severance pay out. However, that does not need to be the case. We are extremely successful in getting these particular covenants to be mutual. In other words, if the agreement requires that you keep certain information concerning your separation from your employer quiet and confidential, including the existence and terms of the agreement itself, it only seems fair that your employer be bound by the same confidentiality requirements. Likewise, if you are being directed not to disparage your former employer, wouldn’t you want your employer to be held to the same standards and to be bound to not disparage you to others and to the public. We have also in many cases negotiated certain language into these agreements that specifically prohibits certain named employees at your former employment from disparaging you, for example your supervisor or manager with whom you might have had a less than amicable professional relationship with and because of whom you might have actually been terminated.
Bottom line: Certain clauses that are initially included as unilateral in a severance agreement can and should be made mutual so that you are just as protected as your former employer after you both have parted ways.
5. Severance Should Always Be Paid Out Up Front in a Lump Sum
Severance will often be offered to you as a payout over a period of time (usually in monthly increments and in coordination with your employer’s regular payroll schedule.) However, severance, like a settlement offer, can be and should be a lump sum. There is no rule that says employers must pay it out to you as they would with your regular paychecks, even though such payments are often considered income and taxed as such. Don’t forget you are no longer employed there, and you are no longer on their payroll. So, any argument they make to pay you as “payroll” is disingenuous and only serves their benefit. In that you will likely be signing a release of all future claims against your employer as well as possibly agreeing to other restrictive covenants described above, in return for the severance payment, you should have the upper hand in the arrangements regarding that payment. Not only is it optimal financially for you to have your severance money paid up front and in a lump sum, but it is optimal from an exposure standpoint. For one, you might not know how financially sound or healthy your employer is. After all, they are terminating employees, which could be a sign that business is bad. Therefore, it is prudent to get your severance dollars up front and in full if possible, in order to avoid any potential inability of them to pay out their remaining obligations. In addition, because any agreement will bind you to comply with the contract terms, where there is a payout arrangement, employers have more leverage to withhold payments to you under the notion that there has been some alleged breach of the contract terms. Lastly, where there is no express severance policy or agreement already in place, there are no hard and fast rules about how much severance you are entitled to. While many employers attempt to correlate your severance payment to how long you have worked there, or to have it reflect a certain number of weeks’ pay for each year you were employed, this is all arbitrary and as a result, usually negotiable.
Bottom line: Severance is not payroll and should be paid to you up front as a lump sum, taking into account not just how long you have been there, but all of the circumstances surrounding your departure, including whether you have potential legal claims and what they are asking you to agree to in return.
ULTIMATE BOTTOM LINE: If you have been presented with a severance agreement/severance policy either at the outset of your employment, during your employment, or at the time of your termination, please do not sign until you have consulted with an employment attorney. We are happy to help you in this situation and we can be retained on a limited hourly basis to guide you through this stressful process. Feel free to contact us at any time or call 203-255-4150 or email at firstname.lastname@example.org.
The next recession is now here, depending on the of source of information or this source. The Federal Reserve is reversing interest rate hikes to soften the economic expansion and the unemployment rate is at a 50 year low. We are well past the cyclical ten year timeframe as recessions go. What is your strategy to preserve your job in the face of this new recession? What is your strategy if and when you are laid off?
You are probably thinking, “what strategy?” You get up, go to work and hope you can continue to remain an at-will employees until the end of the new pay period, under the presumption you have no control over your job. Better yet, you planned on retiring from your company in the distant future. On the other end of the spectrum, there are employees who think their longevity with their employers will insulate them from any headcount reductions during recessions. Both viewpoints are wrong and employees can control their employment outcomes during a recession.
5 Strategies To Save Your Job During a Recession
The following strategies are followed by our clients when they see the “writing on the wall” by their managers. Although some clients never see the messaging from their employer, we do. Depending on how soon you pick up all the clues determines which strategy to pursue. Hint, the sooner you speak with an employment attorney the better. If we are engaged earlier in the process, we can evaluate and develop an aggressive strategy that will force the employer to maintain your employment and/or pay a larger severance package with more favorable terms.
Plan Ahead and Gather Intelligence From Managers and Coworkers
Are you proactive about your employment or do you follow the wait and see approach? Becoming proactive with your employer means obtaining objective feedback from your managers and coworkers. No, I am not referring to the annual performance review or 360 reviews. A proactive employee will develop an initial assessment of his or her own performance by quietly engaging in one on one discussions with managers and coworkers about their working relationship and performance. You will need to keep detailed notes of these conversations in order to track the information over time and over various contexts. Forget about the formalities of the annual review or the vague performance metrics employers follows. I am talking about all the intel you can gather by having a straight up ever day conversation with your manager and coworkers. Examine the body cues such as facial expressions, tone of voice and the context of conversations in relation to those cues. Observe more instead of being reactionary or defensive. The better you are at this task, the more intelligence you will pick up, as your manager or coworker will not know you are gathering information. Once you collected this information, you will need to strategize how to position yourself as a thought leader, influencer, leader and over-all get the job done kind of employee. Lead by example and always remain the consummate professional during all interactions with your employer and coworkers.
Ironically, your employer is collecting similar information about you and your coworkers. In a recent article from SHRM, “A good way to begin is by collecting information about the organization’s workforce that can be used for long-range planning. ‘[HR] should be looking at the data, knowing who is where in their careers, who is where in their teams’… ‘Are people ready to move into the next position? Are they happy where they are?’ Review job descriptions and tasks and determine whether responsibility for those tasks can be more evenly distributed throughout the team. By understanding the big picture, HR leaders can advise business leaders on how to ready the workforce for future changes without resorting to morale-damaging layoffs.”
File Internal Complaints of Discrimination to Maintain Your Job
Once we determine you are may be the victim of employment discrimination or have other employment claims, we will advise you about bringing these claims to your employers attention without escalating to an external governmental agency. The main idea here is to engage in a protective activity to force your employer to “back the heck off” and cause them to reevaluate your potential termination. Our longest standing record to keep an employee employed using this method is two years (my opposing counsel in that case was not happy, but I was not there to please him).
If necessary, you may need to file your discrimination claims with governmental agencies in order to preserve your legal rights. The same antiretaliation laws apply and employers will back off for a limited period of time in order to avoid you asserting an easy to prove retaliation claim.
Dealing With Performance Improvement Plans (PIPS)
Combatting those inaccurate, one-sided and self-serving performance improvement plans. We wrote about this issue in Are Performance Improvement Plans (PIPS) Illegal? A PIP is a clear indicator you will be terminated and you will need to engage an employment attorney ASAP!
Severance Negotiation Based Years of Service
This strategy is relatively straight forward. If you are slated for termination in a layoff, your employer may have a severance plan governed by ERISA, a federal statute that governs these plans. Essentially, an ERISA severance plan spells out the amount you will be paid a salary continuation based on the number of years you worked for the company. There is one catch, you will need to sign a waiver and release of all your legal claims against the employer in order to receive the payout. You will also need an employment attorney to review the settlement agreement to insert favorable terms or get rid of unfriendly terms like noncompetition agreements. Make sure when speaking with an employment attorney that he or she is an ERISA attorney, as there is a difference. Our ERISA attorneys know how the statute works and will even point out in certain cases that you can create an ERISA plan based on one employee, “you”, even though the employer never created an ERISA plan. Engage us to learn more.
Getting Rid of That Noncompete Agreement on the Way Out
Great, you will be getting terminated but your employer stuck you with a noncompete, either at the start of your job or as part of the severance agreement. What do you do? The noncompete does not benefit you at all, only your employer. Now you have to navigate away from jobs you would normally apply for given your years in the same industry. Is this fair? No. Someone has to pay the utilities, mortgage and household expenses, but do not count on your employer to do you a favor. I have long taken a stand against these selfish one sided agreements and forced employers to rescind them or obtain an order from the court to void them. We can help you remove your noncompete agreement with your employer and make you a free agent in the job market. We will challenge the validity of the agreement with the employer directly and if the employer does not back down, we will take them to court through what is called a declaratory judgment action. Essentially, we ask courts to void the agreement due to lack of intention by the employee to enter into the agreement, aka a lack of consideration.
If you need more help planning for your future employment issues, please contact an employment attorney in our office. Employment law is all we do.
We all have made decisions we regret later on at some point in our lives, especially related to our work. Here are three very good reasons why accepting a severance pay may not be in your best interest.
Reason 1: Confidentiality Clauses and Clawbacks
You were just presented with a severance package but you hold the brass ring of all time employment war stories there is. You plan on exposing your employer and you are extremely agitated. Without a doubt, you think you have the greatest case in the world. Then you discover the severance agreement contains an iron-clad confidentiality clause that will prohibit you, your wife, your children and your parents, from ever telling your big story about a colossal corporate wrongdoing. If you accept the confidentiality clause and later breach the provision through disclosure, you risk the company taking back all of the severance pay and getting sued by the company. At this point, the severance pay must outweigh the potential monetary value of public exposure and your credibility as a new whistleblower. But your career may take a dive. This is the classic catch-22 I see all too often. You may not want to accept the severance agreement if the future monetary reward is great.
Reason 2: Non-competition and Non-solicitation Clauses
Remember that document you signed when you were on-boarded and were not really sure why you were checking the electronic box? Yes, that one. The non-competition and non-solicitation agreement you never intended to enter into. Now, upon separation, your employer hands you the severance agreement and you see an acknowledgment provision relating to the old non-competition and non-solicitation agreement. In the alternative, the non-competition and non-solicitation agreement is presented in the severance agreement and you never had one while working for the company. It gets worse, you were just offered a higher paying position with a competitive company which also does business with the employer (yes this does happen) or the new employer is both the competitor and the former customer/vendor). In either example, you want to accept the severance pay because it is modestly reasonable, let’s say $75,000-$100,000. But your new offer pays a salary of three times the severance amount and several years of employment. Obviously, you may want to decline the severance if this the first time you have been presented with a non-compete and non-solicitation provision, as the future salary far outweighs the severance being offered. You may want to ask the new employer to offer a sign-on bonus in exchange for the leave behind pay (severance and bonus). But what do you do if the non-competition and non-solicitation agreement was signed back on your first day of work? In this case, signing a severance agreement acknowledging the original non-compete only makes matters worse. You are stuck with the restrictive covenants. You may need to challenge the enforceability of the original agreement by declaring it void for lack of consideration (you did not intend to enter into it). We do this all the time but there are risks associated with moving forward with employer number two, mainly having an injunction filed against you. Again, the future salary will dictate your choice here and hopefully, your new employer will financially support your choice to compete.
Reason 3: Severance Amount Is Too Low
Let’s assume you have worked for the employer for ten years before being offered a severance package. When you open the agreement, the severance amount is small. You discover the confidentiality clause and the restrictive covenant provisions mentioned above. You conclude the severance is just too small in comparison to the loss of future economic value of not working in your industry. You can decline the severance and sleep well at night knowing you can remain in your chosen field of work. In the alternative, you can hire an employment attorney to scope out any and all possible legal claims to leverage on your employer to get a higher severance amount. This is what we do every day. If you’ve been terminated by your employer and offered a severance agreement, let the employment lawyers at Carey & Associates, P.C. help you evaluate the pros and cons of signing the agreement.
You have been terminated from your employment and have been fortunate enough to be offered the opportunity to separate from your employer by way of a severance agreement. A severance pay out can certainly be the silver lining in the otherwise unfortunate scenario of losing your job. In fact, it might even seem too good to be true – receiving compensation from your employer without having to work anymore and sometimes in addition to earnings from a new position. But as they say, if something seems too good to be true, it probably is. In fact, severance paid to a soon-to-be-former employer does not come FREE and there are usually substantial conditions that come along with this payment, or what the law refers to as “consideration.” As the employee, it is crucial that you are fully apprised of what you are giving or giving up in return for this payment. Knowing this at the outset means that the agreement under which the severance is offered needs to be meticulously reviewed, understood and negotiated, before you sign.
It is important to begin any conversation of severance agreement with the understanding that a severance agreement is a contract and as such, once executed, the terms and conditions are binding for both parties. While severance agreements can take many forms and vary substantially, these agreements are almost always generated by the employer and provided by the employer to the employee. As such, there are certain provisions that typically find their way into these agreements that can work to the detriment of the employee and to the benefit of the employer.
Here are examples of such severance contract items that need to be carefully considered – before you take the money and run.
Release of Claims/General Release
Almost every severance or settlement agreement will have a release clause. In fact, these agreements are actually sometimes titled, “Severance and Release” or “Settlement and Release.” It is important to fully read and understand the particular release language in your agreement. In essence, a release means that in return for the settlement pay out, the employee agrees to release the employer from any and all claims the employee might have. It is important to note that often these releases are retroactive and proactive, thereby prohibiting the employee from making a claim against the employer for something that occurred prior to the signing of the agreement as well as for any claims that might arise or which might become known to the employee AFTER the signing of the agreement. These release provisions can be extremely broad and restrictive and so it is imperative to fully understand what you are giving up in this regard. You are essentially agreeing not to bring any form of claim at any time past, present or future against your former employer.
Amount of Severance
The amount of severance provided can vary greatly depending on such factors as the situation under which you were terminated, the length of your employment and the position you held. But this amount can also be wholly arbitrary and not surprisingly, the employer will try to get away with paying as little as possible. It is advisable to look back to your initial employment agreement (if you have one), as it might set forth the specific terms of severance to which you are entitled. In addition, your employer might have a company-wide severance policy. It is also important to make sure any accrued or unused vacation days are added to your severance in the form of additional pay out. In many instances, the amount of severance can be negotiated and we strive to get our clients the maximum severance pay out under the circumstances.
This is one of the most important clauses to understand in your severance agreement. Most agreements will have some sort of a non-compete which essentially means you cannot go and work for or with the “competition” after leaving your current employer. Depending on the specific language of the non-compete, these covenants are typically highly restrictive and might actually prevent you from earning a living in the field in which you are qualified. They often significantly limit the period of time and geographic area in which you can seek re-employment and go back to work. It is ideal to have these non-competes stricken from the agreement. In the alternative, the next best course of action is to modify this clause to make it less prohibitive so that you are not denied the right to earn a living.
Severance agreements often have an expiration date masked in the form of a “review period.” Many times this is overlooked by the employee as it is not set forth as an outright expiration date of the severance offer, but rather as a period of time within which the employee has to review and sign the agreement. While the amount of time can vary, a typical review period is 21 days. It is important to be mindful of this deadline as the severance offer can be rescinded if you do not sign within the time frame set forth in the agreement. If you feel that you will need more time to fully understand and be counseled on this agreement, it is advisable to seek an extension of the review period at the outset so that you have adequate time to retain counsel, address and negotiate any issues, and not feel pressured or rushed into signing.
Disparagement and Confidentiality
Many severance agreements will have a disparagement and confidentiality clause. What this basically means is that the employee is prohibited from disparaging the company in any way and that the employee is agreeing to keep the terms of their separation from the company and the resulting severance agreement confidential. We advise our clients to modify this clause so that the disparagement and confidentiality restrictions are MUTUAL. In other words, why should this be one sided? It is preferred that both the employer and employee be prohibited from disparaging each other in the future, and that both parties be bound to keep the specific terms of the termination and severance confidential.
Bridging Pay or Set-off
Many severance agreements include language that reference severance pay out as money intended to “bridge” the time between when you are terminated from your current employer and when you seek re-employment and regain earning a living. In essence, what this seeks to accomplish is that once you gain new employment, you are obligated to inform your former employer of this and that your severance will stop on the first day of your new employment. Severance is often paid out over the span of the severance period, in conjunction the company’s usual pay roll schedule. However, we believe severance is intended to and needs to be treated as a lump sum settlement amount to which you are fully entitled, regardless of if and when you begin a new job. Even though it might technically be paid out over the course of the bridging period, at no time, even in the event of re-employment, should you be deprived of the full amount of this settlement. We will always seek to have this set-off clause removed from the agreement.
While every severance situation is unique, generally speaking these are just some of the types of matters that we counsel our clients on when they come to us after having been terminated and presented with a severance/settlement/release agreement. Our goal is to educate and counsel the client on what they are signing and specifically what they are giving up in return for the severance payout. We will then discuss what needs to be negotiated and work with the employer and opposing counsel in getting an optimal, more balanced and legally sound agreement presented to our client.
If you’ve been terminated by your employer and offered a severance agreement, let the employment lawyers at Carey & Associates, P.C. help you feel confident before signing on the dotted line.
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Parting ways with an employer isn’t always a cut and dry process. Especially if you’ve invested years of your time and ideas to move the company forward. If you’ve recently been let go by your employer and are unsure how to proceed with the severance package you’re being offered, here are the top 5 things you should know about severance agreements and your options.
1. Have an Employment Attorney Review the Severance Agreement
If you had a medical condition, you would seek the advice of a physician. The same logic should apply when you have a legal situation such as an impromptu termination where the employer provides a severance package. There is a direct correlation between retaining an employment attorney to negotiate your severance package and the amount of the increase in severance pay. I have seen many people over the last twenty years attempt to negotiate their severance agreements by themselves with little success in the way of increased severance. Employers simply say, “This agreement is a take or leave it deal,” when employees attempt to negotiate the agreement on their own. An employment attorney can dramatically modify an existing severance agreement to make the deal fair and balanced, including the removal of one-sided non-competition agreements. The employment lawyer can also increase severance pay by developing legal claims you did not know existed.
2. If You Want More Money, You Need a Legal Claim
Face it, if you want more money in severance pay from your employer, you need to hire an employment lawyer. An employment attorney will review your detailed factual narrative and ask very pointed questions to develop legal claims that can be used to increase the amount of severance pay you will eventually receive. The employment lawyer can also diagnose the illegal activity committed by the employer and confront the employer with a sworn affidavit supporting a comprehensive notice of legal claims. When the employee substantiates his/her case in this manner, the employer often times increases the amount of severance pay the employee will receive under the severance agreement.
3. You Can Extend COBRA Coverage
An employment attorney will often time the length of the severance pay with the length of the COBRA period. This is a routine provision that most employees do not know they can increase. In fact, you can obtain COBRA coverage for up to 18 months.
4. Confidentiality is Key with Severanc Agreements
When you receive severance compensation you provide a full release of claims against the employer that is completely confidential. Employers shield themselves against potential liability and publicity by using broad confidentiality provisions that cover you, your attorney, your financial advisor and your family. An employment attorney can narrow the confidentiality so that it is only applicable to you, relieving the unnecessary burden on your accountant, attorney and your family.
5. Legal Fees Paid By the Employer
The employer gave you the severance agreement to review with an attorney. Most employers include a provision that you acknowledge you have been given the opportunity to review the agreement with an attorney. Then, the employer must pay your legal fees to review their one-sided severance agreement. The agreement should be modified to include coverage for your legal fees.
If you’re looking to get the most out of your severance agreement and don’t know where to start, contact Carey & Associates, P.C., we concentrate in employment, wrongful termination, discrimination, whistleblowing, and more. Get the severance you deserve. Contact us now!
If you believe in the natural order of things in the environment, nature will take care of itself all on its own. When mankind introduces unnatural externalities into the orderly flow of evolution, fundamental changes develop that alter the natural order in nature. Take honey bees and Bridgewater Associates for example, each have been infected with a chemical or unnatural pathogen that is slowing destroying them; don’t mess with Mother Nature.
Honey Bees and Neonicotinoids
I raise honey bees at my home, caring for about 10 hives each year. Bees are a bewildering microcosm of chaos but in reality they are a highly efficient hierarchical system of organized labor supporting their beloved queen bee. Honey bees function just fine left alone. They will raise their brood into worker and drone bees. In this culture the females run the show and everything turns out sweet as honey. By the way Drone (male) bees serve only one limited purpose, to help the queen produce more bees. There is no talking, complaining or rating systems among the employees, just a system of chemical pheromones and directional dances that make the hive hum and maintain an adequate balance sheet of honey food stores which my neighbors and I enjoy. Honey bees are born with a coded instinct to get along, just like employees (i.e. the golden rule). Then enters MAN, who seeks to disrupt the natural order of bees with a new language and culture. To yield more crop production and make lawns green as the emerald isle of Ireland, man introduces chemicals that interfere with the language, culture and natural order of bees. Please stop using pesticides on your lawn. Not only are pesticides slowing killing you, they are deadly to honey bees and other pollinators. No bees, no food, no you! Learn a new vocabulary word- Neonicotinoids. Connecticut and the European Union is moving to completely ban this epidemic use of the chemical, which has been proven to cause colony collapse in bees. I can personally attest that Neonicotinoids kill bees, I lost 20-30 hives in the past three years because my fellow citizens treat their lawns with this chemical. I hope for a better future and continue to raise bees.
“Principles” Are Not Working at Bridgewater Associates
Then there is Bridgewater Associates, located less than three miles from my office. I am not saying the company ever used pesticides on employees, but maybe they used a psychosocial pathogen to infect their culture, aka “The Principles”. The company and its founder have introduced an unnatural externality into the work place previously never seen in the working world. With the introduction of a new language and culture, which I comically refer to as “Newspeak”*, the company’s founder Ray seeks to re-order the natural order of human interaction at work- impacting 1500 employees at its’ two campuses in Westport, Connecticut. The company’s Newspeak presumes we are weak and dysfunctional and we need to be fixed. Bridgewater Associate employees must reconcile themselves with the founder and leader “Ray”, who is on a self-promotional advertising campaign these days to compel future disciples to follow him on his legacy, to buy into the Principles. When you force employees to hold ipads and rate one another during every human interaction (only the negatives and not the positives) something seems strangely unnatural. The employees must follow Ray because they have no choice. Either follow or exit the hive after two years or less with significant handcuffs related to confidentiality and noncompetition. Employees are people, not machines processing big data. They have feelings, emotions, disabilities, and sometimes it is just OK to be vulnerable and weak. Presumptively, employees seek out encouragement, optimism and uphold a personal desire to succeed in their careers. Principles or Newspeak seeks to prey upon the weak and injured and suck dry any semblance of empathy and “Compassion”, a Buddhist concept (Bodhicitta or “enlightened mind”). Yet Ray wants to sell his brand of Principles to every corporation and we should all be concerned.
(*“Newspeak” was a phrase used repeatedly in George Orwell’s infamous novel 1984 and fully described in the Appendix to the novel. “Newspeak was the official language of Oceania and had been devised to meet the ideological needs of Ingsoc or English Socialism…The purpose of Newspeak was not only to provide a medium of expression for the world-view and mental habits proper to the devotees of Ingsoc, but to make all other modes of thought impossible. It was intended that when Newspeak had been adopted once and for all and Oldspeak forgotten, a heretical thought—that is, a thought diverging from the principles of Ingsoc—should be literally unthinkable, at least so far as thought is dependent on words…For the purposes of everyday life it was no doubt necessary, or sometimes necessary, to reflect before speaking, but a Party member called upon to make a political or ethical judgment should be able to spray forth the correct opinions as automatically as a machine gun spraying forth bullets. His training fitted him to do this, the language gave him an almost foolproof instrument, and the texture of the words, with their harsh sound and a certain willful ugliness which was in accord with the spirit of Ingsoc, assisted the process still further.” Id.)
Contact Mark Carey at email@example.com.