Employment Severance Agreement Explained: Whether or not you use an employment attorney to review and negotiate your employment severance agreement, you need to know the mechanics of the agreement. The following episode will go in depth and explain the legal terms in an understandable way.
Generally, all severance agreements accomplish one task, paying employees to release their claims against the company in exchange for money and confidentiality. Mark has seen thousands of these agreements in his twenty-five years of practicing employment law for employees and executives. They are all relatively the same in the terms, but differ in their layout. Most law firms use the same template, so Mark sees the same agreement used over and over again.
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The Employee Survival Guide podcast is hosted by seasoned Employment Law Attorney Mark Carey, who has only practiced in the area of Employment Law for the past 25 years. Mark has seen just about every type of employment dispute there is and has filed several hundred lawsuits in state and federal courts around the country, including class action suits. He has a no frills and blunt approach to employment issues faced by millions of workers nationwide. Mark endeavors to provide both sides to each and every issue discussed on the podcast so you can make an informed decision.
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Transcript:
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Welcome to another edition of the Employee Survival Guide, where you can learn everything your employer does not want you to know about and more. Now, here’s attorney Mark Carey. Hey, it’s mark here and welcome to the next edition of the Employee Survival Guide. Today we’re going to talk about the implement severance agreement explained in detail. Whether or not you use an employment attorney to review and negotiate your implement severance agreement. You need to know the mechanics of the agreement. The following discussion will go into in depth and explain the legal terms in an understandable way if you need further information on severance negotiations. We have written about severance agreements and negotiations and our website at cap claw calm on various articles. Generally, all severance agreements accomplish one task paying employees to release their claims against the company in exchange for money and confidentiality. I’ve seen 1000s of these agreements in my 25 years of practicing employment law. For both employees and executives. They are all relatively the same in their terms, but differ in their layout. Both law firms use the same template. So I see the same agreement use over and over again, the introductory paragraphs, the initial paragraphs of every severance agreement, identify the parties to the agreement and include a couple of quote unquote warehouse provisions. The whereas paragraphs are predatory and not required in any agreement, I usually strike them as irrelevant. The next paragraph is the non admission provision. Every severance agreement includes a provision that the employer is not making an admission of wrongdoing. Even though the employers actions were objectively discriminatory or wrongful. A non admission provision is standard but to the newly terminated employee. This provision seems awkwardly strange given the employee’s experience leading up to the termination. The next paragraph is the Show Me The Money provision for the consideration section. Well, for employees, this is the most important provision in the agreement, what they will be paid to release their valid claims against their employer. It is important to consider the following structure when drafting the consideration or payment provision. First all money paid to an employee to settle an employment case is taxable as income. Second, you can split the sum of payment into parts to take advantage of tax planning. The employer will also like this option to as they pay less than fica. We normally allocate 60% as 1099 income and 40% as w two income. This allows you to receive a large lump sum, as less taxes are deducted. You’ll also want to modify your W four statement that you filed with the employer this also affects the outcome. The employer will require you to indemnify the employer if and when the IRS challenges the settlement agreement on form 1099 payments. In reality I’ve never seen nor heard the IRS conducting audits on settlement agreements anyway. The next paragraph is the attorney fees are tax deductible against gross income. Remember, if you spent hard earned income on attorneys fees pursuing employment discrimination claims you received and and receive a judgment or settlement in your favor, you can deduct a total amount of the attorneys fees against your gross income on your form 1040. You can only take this deduction for the year in which the case settled or judgment occurred. This is a crucial element to your decision to accept settlement as most employers refuse to pay your legal fees to get a settlement. You are not alone if you never knew about this important IRS regulation. We regularly advise clients about this deduction, but it’s recommended to speak to an accountant for tax purposes. The next section general release of all claims when employers pay severance in exchange for a sign release. The general lease provision is the primary provision most employers are concerned about this provision effectively identifies every conceivable claim known or unknown that the employee has and then causes the employee to waive all such claims. Most severance agreements set forth a long laundry list of state and federal statutes that the employees agreeing to waive claims. However, some claims can never be released in a written severance agreement. As state and federal laws prohibit such waiver of claims. For example, you cannot waiver or release a workers compensation claim and unemployment insurance claim or claims made to a self regulatory agency, such as the Securities and Exchange Commission or the SEC. next paragraph, challenge to agreement or enforceability. Most severance agreements contain a provision that if you seek to challenge the enforceability of the agreement, you have to return the money. That seems fair it is but some employers also sneak in a penalty provision, sometimes known as a liquidated damage provision in case the employer breaches the agreement for speaking out about the settlement. Employers often seek the total value of the settlement or some six figure amount to protect the employer in case the departing employee goes rogue and publicly denounced as the employer on social media. This penalty provision often shows up in cases where there is a lot of bad blood spilled between the parties, particularly after a lawsuit is filed. We strongly advise clients against these draconian provisions and inform employers they are overreaching and are already protected by now. Non disparagement clauses and employee confidentiality grant agreements previously signed at the startup implement the next paragraph. No other amounts are due. Employers often place a redundant provision in the settlement agreement that the company does not owe the employee anything more. I say redundant because they release provisions should have covered every claim under the sun might want to strike that provision. Non disparagement clauses every severance agreement contains a non disparagement clause, but one only applicable to the employee and not to the employer. We advise clients to include a mutual non disparagement clause to be signed by the employer so it does not engage in blacklisting, which is a real a very real phenomenon. You will need to name specific individuals and managers when negotiating and mutual provision as employers object to having to police their entire workforce. I personally never liked this response. But hey, these are called negotiations for a reason. You don’t get all the things you want and must compromise or litigate. next paragraph, references and employment verification. Contrary to urban legend, employers do not provide references to departing employees. What they do provide is a one 800 number to confirm your employment entitled but nothing more. If you have a good reference still within the company, I suggest you get that in writing or have the person contact your new employer directly. As an add on I was reading this morning, The Wall Street Journal that most employers roughly about 60% don’t provide references at all. next paragraph, no future employment. most if not all, severance agreements contain a provision that bars you from obtaining employment with the company or its subsidiaries in the future. Yes, this is perfectly legal. What the provision really accomplishes that in the prevents future liability by the company in the event you reapply for a position and claim you’re somehow discriminated against for affiliate or hire. If you asserted claims against the company prior to termination or thereafter. Be reasonable with yourself and do not expect the company will want to rehire you consider yourself cancelled by your old employer. next paragraph. Return of company property severance agreements can require you to return company property upon your termination or before you receive your severance payment. You’ll be surprised by the number of times I have to explain what is and is not company property to former and departing employees. I often use the example of company email, you know, the one containing your corporate email address? Well, the email and the piece of paper it’s printed on do not belong to you. So if an email does not belong to you, everything else the employer gave you to do your job also does not belong to you. My biggest concern arises when the employee tells me he wants to hold on to a hard drive he purchased that contains the company email lists, client lists, PowerPoint presentations, and then any other corporate proprietary information. All the above company property must be returned to the employer or you risk getting sued for theft, conversion of property, etc. Your risk in risk breaching the severance agreement and returning the money paid to you under that agreement. So return the company property. next paragraph, entire agreement or what I called a full integration provision. This is a standard term in all well drafted employment agreements, including severance agreements. Essentially, the only terms of the agreement are those terms that set forth in the severance agreement. Any oral or written agreements made prior to the full execution of the severance agreement are non binding and unenforceable. So be careful in your review of your case so that you don’t do not hold expectations that are not realistic. You would need to have an employment attorney evaluate a prior oral agreement to determine if it is viable prior to signing the severance agreement. Some employers have promised severance prior to the severance agreement but then walk back those promises. Again, an employment attorney can help you deselect this important legal issue. You may discover that your employer created a severance plan of one person you next paragraph noncompetition and nonsolicitation provisions. We often see employers sneaking into severance agreements brand new non competition non solicitation provisions where none previously existed during the employee’s employment. We advise clients to strike these provisions in most employers do not raise the subject again. As Employment Lawyers, we see this tactic used every day but you did not. This is one example where you should involve an employment attorney to review your agreement, whether helping to negotiate it with the employer or from behind the scenes. We also see employers reaffirming the prior non compete and non solicitation provisions signed at the start of employment into the severance agreement. Again, we advise clients to challenge the inclusion and enforceability of these restrictive covenants. Most employers will back away once they were met with a good argument as to why they are the prior agreements are unenforceable. next paragraph agreement signed in counterparts. It is common to include a provision that parties to a severance agreement can sign a separate counterpart copies each of which will be considered one fully executed agreement counterparts are exchanged via email in facsimile as well as in person. next paragraph 21 days to sign or else, don’t panic if you have not signed your agreement within 21 days as spelled out in the in the quote unquote proposed agreement. There is no state or federal law that states you have 21 days or 45 days to sign the severance agreement. If the agreement is not signed by you. Do you think you Have an enforceable contract? No. So ignore the 21 or 45 day threat and just speak with an employment attorney discover what claims or leverage you have to increase the severance amount. Oftentimes consulting with an employment attorney will pay off in huge dividends to you in the form of much higher settlement value at the conclusion of the negotiations. The difference or delta here is the employment attorney she or he has a professional experience you lack in it is the experience and knowledge of the law that is applied to your narrative to develop claims that stick against your employer. As you read above your legal fees are 100% tax deductible. So why wouldn’t you explore your potential claims within with an employment attorney? Next provision, confidentiality provisions, I saved the best for last. Of course, everyone knows that you give up your legal rights in a severance agreement, but many do not know. You also agree to a lifetime of silence. No, you cannot write a book about your horrible employer if you agree to take their blood money. But the reason why I saved this topic for last is because of a recent social and legal developments that have occurred, the hashtag me to have it and the aftermath that followed, brought with it a new understanding about confidentiality agreements, also called non disclosure agreements or NDA is the social issue that has arisen is that we are no longer comfortable letting the bad actors of the world get away with their misdeeds, in particular any misdeed of a sexual nature regardless of the gender or sexual orientation by covering them up with confidential settlement agreements. Think of Harvey Weinstein or their former met opera conductor James Levine, rest in peace for decades and continuing today, every single employer requires the departing employee sign a confidentiality provision in a severance agreement in exchange for severance payments. This is a default rule followed by all employers, this default rule has only cause more employees to be harmed by the same bad actors who caused the previous cases that eventually settled. Many states like New York have created statutes requiring a voluntary confidentiality agreement separate and apart from the settlement agreement. While this sounds like a good idea, it has already been abused by employers. Most employers will now a portion a part of the settlement payment to be in exchange for a signed covenant covenant quality agreement. Simply the legislators were lobbied by employers, and should have banned the use of settlement dollars in exchange for signed confidentiality agreements. The bottom line for you is this. We are just not at the social pivot point for you to resist the use of confidentiality provisions and settlement agreements. So don’t waste your time arguing about this issue with your former employer. But one day confidentiality provisions and employee severance agreements will be banned as a matter of statute and public policy. This is a non political issue, as both liberals and conservatives use confidentiality permits to conceal the legal misdeeds of their managers employees. If you need more information about this podcast and want to discuss your severance agreement with an employment attorney please call Carey & Associates PC t 203-255-4150 or email to info to caplaw.com thank you and be safe,