What is a Severance Agreement
A severance agreement is basically an agreement between an employer and employee which essentially says that the employee waives any and all claims against the employer in exchange for some sort of compensation (typically money). It’s important to note that not every employer provides severance agreements, though many do, so just because you are getting laid off by a large employer does not mean you will be offered a severance agreement. That being said, many employers—particularly larger employers, public agencies, and organizations represented by lawyers—do use them, and it is a good idea to understand what a typical agreement looks like.
Most severance agreements include several standard components. Most commonly they state that as consideration for the employee’s waiver of all legal claims against the employer, the employer agrees to provide certain compensation . I already discussed that compensation is typically in the form of a lump sum payment, but it can be other types of compensation, including an employee’s continuation of retirement benefits, health insurance, or accrued paid time off. In addition to compensation, other common components in severance agreements include:
One thing that is important to remember about severance agreements—and this is particularly true for public employees—is that they will sometimes require the employee to waive rights that the employee may not actually want, or might not even know they have. For example, most public employees have certain rights to contest their termination, and many private sector employees have the right to recover unpaid wages. However, it is often lumped into the agreement just like any other waiver, and the employee’s signature on the agreement will usually waive those rights too.
Advantages to Having a Lawyer Review Your Severance Agreement
The key benefits of having a lawyer review your severance agreement may not be immediately obvious. A severance agreement with your former employer is just like any other legal contract. Massachusetts Employment lawyers that specialize in Severance Agreements know the law and find potential legal issues for the employee that the employee would otherwise miss. If these legal issues are missed, an employee may lose out on thousands (and sometimes millions of dollars) of potential severance compensation.
If you or someone you know recently lost a job, your next move should be to have a qualified Massachusetts Employment lawyer review your severance agreement. A lawyer familiar with severance agreements typically offers free consultations and can quickly and simply determine whether any issues exist with the existing severance proposal from your former employer.
A good lawyer can also help to negotiate a better severance deal for you. Perhaps your base compensation of $200,000 included an annual bonus of $20,000 and other benefits with a fair market value of $10,000. Lawyers familiar with compensation packages often find out that such compensation packages were valued incredibly poorly by the employer. The lawyer can help to calculate the total compensation value and endeavor to get the employee appropriately compensated.
Furthermore, a lawyer familiar with severance agreements and the requirements under Massachusetts labor laws can make certain that your former employer followed its contractual requirements. For example, an employer generally has to pay all earned but unused vacation time as well as sick time per state law. If an employer does not include these items within a separation agreement, it may have violated state or federal labor/employment laws.
Provisions You Should Look for in a Severance Agreement
A severance agreement will typically contain a number of common clauses. Among these clauses is a non-compete clause. This part of the agreement will often prohibit the employee from working for a competitor of the company for a certain amount of time after the employee leaves. Non-compete clauses can be very difficult to understand on your own as there are many state-specific nuances that can have a significant effect on the meaning and/or enforceability of the clause. You may be surprised by how restrictive a non-compete clause can be; for example, in California and possibly Montana, non-competes are considered void in their entirety because they would violate California’s public policy to promote employee mobility (i.e., that it is in the best interest of the public for employees to be able to work without restraint.). It’s important to let your attorney review the terms of your non-compete clause to determine whether you can accept its terms.
Severance agreements also typically contain confidentiality agreements. These agreements restrict employees from disclosing the company’s confidential information without their permission. Confidential information can include customer lists, financial data, trade secrets, or any document labeled "confidential" among many other things. The problem can come when the term "confidential information" is not defined in a severance agreement or is too broadly worded. In other words, if the term is not specifically defined, what may seem like a harmless disclosure may be considered a breach of the confidentiality agreement. You should have your attorney review this clause to make sure that it is not too overreaching.
A clause that essentially releases the employee’s claims against the company is also common. This clause typically makes the employee agree not to file any claims against the company in exchange for the company’s payment of severance benefits. This release is also known as a "general release." While a general release may seem simple, it is important for you to know that if you receive severance benefits, you may be giving up certain legal rights to take action against the company. These legal rights could include the right to file an age and gender claims with federal or state agencies or even the right to sue your employer for wrongful termination. It is important to note that in order for a general release to be enforceable under the Age Discrimination in Employment Act ("ADEA"), an employee must be given 21 days to review the release. Employers are not required to provide employees with 21 days, but if they do not, they cannot use the release to defend a claim under the ADEA. If the company has more than 20 employees, they must also give the employee seven days to revoke the release after it is signed. There are also other requirements not mentioned above that apply only to ADEA general releases. Your attorney will be able to walk you through them if you should need to meet those requirements.
As illustrated above, there are important issues relating to the above mentioned clauses and reviewing the meaning and enforceability of these clauses should not be done without the assistance of an attorney.
How an Attorney Can Help You Get Better Severance Terms
A lawyer can help someone negotiate higher severance pay or benefits or even a combination of these and more. With regard to negotiating a better severance package, I often advocate for a lump sum or an early payment of severance without any continued company control over your payments. I also recommend that the employer assume its share of the cost of COBRA health insurance for the employee following the termination. In addition, I have successfully negotiated extended periods of time in which a former employee may receive continued insurance coverage, additional vacation, increased severance, accelerated vesting of stock options or restricted stock, separation of stock options or restricted stock from the single trigger change of control agreements, enhanced outplacement services, the opportunity to conduct a meaningful search for a new job in the event of an involuntary termination, 15-30 paid days to search for a new job in the case of an involuntary termination, and future consulting opportunities. My firm has had success negotiating slightly higher severance pay in exchange for an agreement to not to sue beyond the usual claims set forth in a release.
I have found that negotiating the duration and scope of restrictive covenants is another common route by which I have enhanced a severance package. For example , I have in negotiating extended notice periods before restrictive covenants go into effect, reductions in the duration of restrictive covenants, and concurrent reductions in the post-termination scope of restrictive covenants and enhanced severance provisions if an employee is adversely affected by a third-partys competition with the employer. I have also negotiated increased post-employment compensation in return for covenants not to compete working for competitor or solicitation of customers.
I have found that the best approach to negotiating better terms is to prepare a list of "needs" and "wants" and emphasize these in the negotiations while listening carefully to your employer’s response. Further, I have found it helpful to suggest or float options that may work for both sides rather than just demanding more. For example, you might say, "If we cannot agree on extending the severance payment schedule, maybe we can talk about increasing the amount of severance." If your employer suggests three months of health care continuation and stock options vesting, consider offering two months and acceleration of vesting. The key to reaching a desirable settlement it to completely understand what you need and want so that you can advocate for and achieve a settlement that better reflects your interests.
How to Select the Best Lawyer for You
While there are many fine attorneys capable of reviewing your severance agreement for you, it is nevertheless important to do your due diligence when deciding who should help you. If you do elect to have someone look at it for you, as a starting point, you should seek someone who has experience reviewing severance agreements, and is familiar with the practicalities of negotiating them. Rather than seeking out a family law attorney, or a personal injury attorney, or a commercial transactions attorney, it would be wise to consult with an employment attorney, who does nothing but employment law.
Client education on various types of employment law practice, can be a good way to determine whether you are talking to someone who specializes in employment law or not (if the attorney thinks both employment law and family law are basically the same thing, see above). Client testimonials that celebrate the attorney’s employment law acumen are also telling. The attorney’s experiences can also be gleaned in part from the employment law blog he or she publishes (or does not) and, for the attorney of most experience, the types of publications they are featured in. Most lawyers true to their practice area find their thoughts and opinions published in law journals and respected publications. Depending on which state you live in, it may even be possible to view the actual website page for complaints filed on any given attorney. In many states the complaint must be posted, regardless of whether the complaint is frivolous, without merit or sustained. If a lawyer’s page lists multiple complaints filed against him or her, that attorney may not be the right choice for you.
How Much Legal Review Will Cost and How You Benefit
When considering the cost of hiring an attorney it’s important to keep in mind the alternative, which is often no alternative when it comes to severance agreements. The cost of a severance agreement review is relatively low and, as usual, the old adage that the control a little money leads to a whole lot of regret rings true, especially here.
The cost of a severance agreement review is typically just a couple of hundred dollars , depending on the attorney you choose and the number of issues raised by the severance agreement. In the end, the few hundred dollars spent to get a good review can have a direct impact on the severance agreement terms. The point being, limiting future mistakes through the use of a lawyer is exactly the reason employers do what they do – to limit maximizing damages.