Employment Law Attorneys

Three Reasons Why You Should Not Accept Severance Pay4 min read

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.

Get in touch today!