Losing your job can be a stressful and disorienting experience. When a severance package is offered, it might seem like much-needed financial relief during a difficult time. However, it’s crucial to approach a severance agreement with a clear head and a critical eye. These legal documents are designed by your former employer to protect their interests, and they can significantly impact your future career prospects and legal rights.
What is a Severance Agreement?
A severance agreement is a contract between an employer and an employee outlining the terms of their separation. It typically includes a sum of money (severance pay), and potentially other benefits, in exchange for the employee’s agreement to certain conditions. These conditions often involve:
- Release of Claims: A clause where you waive your right to sue the employer for issues related to your employment or termination (with some exceptions for things like already-earned wages).
- Non-Compete Agreement: If you signed a non-compete agreement when you started working for the company, then the severance agreement will likely reiterate that restriction, but be careful it doesn’t expand it.
- Confidentiality Agreement: A clause barring you from disclosing sensitive company information, and perhaps even talking about your employment at all.
- Non-Disparagement Agreement: A clause that prevents you from making negative statements about your former employer.
Why You Need to Read Your Severance Agreement Carefully
While a severance package can provide short-term financial support, it’s essential to understand the long-term implications of signing the agreement. Overly broad or restrictive clauses can significantly limit your career options and your ability to seek legal recourse if necessary. Always remember, your former employer drafted this agreement with their interests in mind – make sure you prioritize yours.
Key Areas to Watch Out For
- Release of Claims: Be cautious about the specific legal claims you’re waiving. Ensure the agreement doesn’t prevent you from pursuing legitimate claims such as discrimination, harassment, or unpaid wages. Also watchout for class action waivers, which means you cannot be a member of a class that collects money from a judgement impacting other similarly situated employees.
- Confidentiality and Non-Disparagement: These clauses are standard, but they need to be balanced. You should be able to honestly discuss your work experience with potential employers and provide references. Some agreements are also so restrictive as to prevent you from even discussing with your best friend, therapist, or religious counsel.
- Benefits and IP: Review how the agreement handles your health insurance (including COBRA), retirement benefits, outstanding stock options, and any intellectual property (patents, creative work) you generated during your employment.
Don’t Rush Your Decision
Employers often pressure departing employees to sign severance agreements quickly. Resist this pressure. You should have ample time to review the document carefully, ideally with the help of an employment lawyer. A lawyer can help you understand the legal implications, identify potentially problematic clauses, and negotiate better terms.
Additional Considerations
- Age Discrimination: If you’re over 40, the Older Workers Benefit Protection Act requires employers to give you at least 21 days to consider a severance agreement and a 7-day revocation period.
- Tax Implications: Severance pay is generally taxable. Consult a tax advisor to understand how it will affect your tax liability.
The Bottom Line
A severance agreement can be a complex document with far-reaching consequences. Don’t let the promise of short-term financial gain cloud your judgment. Protect your future career and legal rights by carefully reviewing the agreement, consulting with an attorney, and negotiating for the best possible terms.
