By Liz Swedock
Most at-will employees who have been recently terminated are given a “Separation” or “Severance” offer from their (now) former employer, in the form of a contract (or packet). This post is intended to give you a few pointers of what to look out for in such agreements.
Remember – this is not legal advice for the individual! This is just a general guide for common issues we encounter. If you have any specific questions about your own separation contract, please call us!
1. Think of your separation/severance offer as a negotiation.
Most employees are not entitled to severance. There is no such thing as legally required “two weeks” pay or anything like that. However, most of the time employers offer terminated employees severance anyway.
Why do they do this? Because they want you to sign a legal release, which is a contractual agreement that you are waiving any rights or grounds you might have to bring a lawsuit against your employer. Your separation/severance packet is this legal release.
So, what does this mean? It means they are offering you something because they want you to sign that release. This is a tit-for-tat. Don’t be afraid to ask for more before you sign.
2. Review what you are being offered – usually money.
As noted, often at-will employees are not legally entitled to a specific amount of severance from their employer. The first element you should think about, before you sign, is whether they are offering you enough in exchange for what they want from you – that legal release.
There might also be other components in your separation/ severance offer, such as continuation of health care or other benefits, or stock vesting. Start by reviewing your agreement carefully to see what they are offering you.
3. Confirm that you are being offered everything you are entitled to.
Review your employee handbook and any other documents you signed at any point during your employment, whether when you first started or while you worked there.
You are always entitled to be paid out for any accrued sick time, vacation time, or any other form of PTO your company offers. You are also entitled to any earned wages, typically referred to as your “last paycheck.” You must be paid for all this time by your next usual pay period.
Review your documents to confirm whether there are any contractual or established policies regarding termination, separation, or severance. For example, your employer might be required to provide you with a notice period before they can terminate you. This might be days, weeks, or months. A notice period could be detailed in your individual employment documents, or in your company’s general documents, such as the employee handbook.
4. Ask for a copy of your personnel file – you are legally entitled to it.
All you need to do is send an email. It could be to HR or your own supervisor. Your personnel file will contain all of the documents you signed with your employer, so this can be particularly useful when you have been employed for a while and can’t remember if you kept copies of everything.
5. Confirm whether you have an ERISA group benefits plan which could include severance benefits.
The Employee Retirement Income Security Act of 1974 (ERISA) is a federal law that sets minimum standards for most voluntarily established retirement and health plans in private industry. Sometimes employers also utilize ERISA plans for severance benefits.
If you are unsure, ask your employer and there is also a free website where you can search for your company name – https://freeerisa.benefitspro.com . You have to make an account, but it is actually free.
6. Consider whether you might have any legal claims against your employer.
If you have a valid legal claim against your employer, this is a huge source of leverage as you negotiate your separation/ severance offer.
Remember, (most of the time) this is a pretty simple exchange. They are offering you something (usually money) in exchange for your agreement to drop any potential legal claims you might have, even if you don’t have any. This boils down to mean that they are potentially offering you free money in exchange for nothing if you have no legal claims. Employers do this simply for peace of mind (and sometimes for reputational reasons in the industry).
If you do have a legal claim, that can be a game-changer in a separation negotiation. At that point, you have to consider the elements on a scale – the value of your legal claim on one side, against the value of the legal release your employer wants, on the other side. Bottom line, it means your company might be willing to offer you much more separation/ severance pay in exchange for you signing the legal release.
If you think you might have a claim, we encourage you to call us to discuss.
7. Request to be released from any non-compete, non-solicit, or other restrictive covenants (if any apply to you).
If you are subject to any type of non-compete, non-solicit, or other restrictive covenants, now is the time to request to be released. Remember – these are simply contractual agreements, and your employer can agree to release you at any time. Even if your employer is not legally required to release you, they are often willing to discuss the option, and/or might agree to reduce the restrictiveness of such covenants. This is part of the negotiation.
Even if such covenants are not spelled out in your separation/ severance offer – they might still apply to you if your separation/ severance offer “incorporates by reference” a prior contract. Sometimes, if an employee signed a non-compete while they were employed, the separation/ severance offer might say something like “Employee agrees that Employee’s Employment Agreement is expressly incorporated by reference into this Agreement as if set forth fully herein.” This means that every single restriction in your employment agreement still applies to you, even after you sign the new separation/ severance offer. Be aware.
8. Review non-disparagement provisions and ask that they likewise protect you.
Many separation/ severance offers contain non-disparagement clauses, which will say something along the lines of “employee agrees not to make any statements which disparage the company or are in any way harmful to the reputation of the company.” These provisions are very broad and much more broad than the legal definitions of defamation or slander. A single angry comment on Facebook, for example, could be a violation of this provision. If you sign an agreement that contains this, be aware that you should avoid any negative commentary about your former employer, including online.
Likewise, you can ask for the same protection for yourself – that the employer commits not to make any disparaging, damaging, or negative statements about you in the future. Again, don’t be afraid to negotiate.
9. Control your future reference.
Similar to non-disparagement, you also have the option to ask for language which will control what your now former employer can say about you when you need future potential employers to call them for a reference. The exact language is up to you, but we often request a provision that will only allow the employer to confirm your dates of employment, and position or title held. You can agree or not agree to allow the former employer to give out your salary information.
10. Arbitration clauses.
Many separation/severance offers include a clause which states that any dispute under the agreement must be brought in arbitration. Like the rest of the provisions, it is ultimately up to you what you are willing to sign, but we typically encourage clients to fight against these provisions. It can be counter-intuitive, but if a dispute arises, our experience has demonstrated that employees can often have much more leverage without arbitration restrictions.
For more information about this article, please contact our employment attorneys at Carey & Associates, P.C. at email@example.com or call 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.