Severance Agreement Review and Negotiation
Why Are There Severance Agreements?
An employer’s decision to terminate or lay off certain employees, while retaining others, may lead discharged workers to believe that they were discriminated against based on their age, race, sex, national origin, religion, or disability. To minimize the risk of potential litigation, many employers offer departing employees money or benefits in exchange for a release (or “waiver”) of liability for all claims connected with the employment relationship, including discrimination claims under the civil rights laws enforced by the Equal Employment Opportunity Commission (EEOC), the Age Discrimination in Employment Act (ADEA), Title VII, the Americans with Disabilities Act (ADA), and the Equal Pay Act (EPA). Although senior-level executives negotiate severance provisions when initially hired, other employees typically are offered severance agreements and asked to sign a waiver at the time of termination.
Severance Agreements = Release of Claims!
A severance agreement is a contract, or legal agreement, between an employer and an employee that specifies the terms of an employment termination, such as a layoff. Sometimes this agreement is called a “separation” or “termination” agreement or “separation agreement general release and covenant not to sue.” Like any contract, a severance agreement must be supported by “consideration,” or the giving of something of value to the employee. An example of consideration would be a lump sum payment of a percentage of the employee’s annual salary or periodic payments of the employee’s salary for a specified period of time after termination. The employee’s signature and retention of the consideration generally indicates acceptance of the terms of the agreement, which in effect prevent the filing of a lawsuit by the employee.
Why Negotiate The Severance Terms?
Upon termination of an executive's employment, an employer will often offer a severance package, typically in exchange for a release of claims against the employer. Normally, the offered agreement will be a boiler plate document prepared by the company attorney and it will heavily favor the employer, to the detriment of the employee. This does not mean, however, that the terms cannot be changed through strenuous negotiation so that they more fairly represent the needs of the employee, and in order to maximize the chances of successfully negotiating the agreement, an employee should retain the services of an experienced employment rights attorney.
What are Your Rights to Severance Pay?
Very few employers set up a written severance plan package that affects all employees, but the vast majority of employers have no such written plan. Like most people, your employer most likely has not bothered to establish a written severance benefits program, and for this reason, you probably do not have a legal right to any severance pay, which is not required by law in the United States. Therefore, whatever rights that might exist are ones that you create by negotiating the terms of a written severance agreement after you have been notified by your employee that you are being terminated. Happily, the fact that severance pay is not legally required does not mean that it cannot be obtained, as it frequently is, through negotiation.
What Do You Have to Bargain With in Order to Obtain Severance Pay?
It may not seem obvious, but as a terminated employee, you are not completely without resources that can be bartered in exchange for severance pay. Even though the company has decided to terminate your employment, that does not mean that you have nothing to offer the company that can be turned into hard cold cash for you and your family. Companies want to make the termination transition smooth, they do not wish to create enemies, they want to know that their trade secrets are safe, and they would like to know you will not sue them and will cooperate if they need your cooperation for any reason after the employment has ended. Any attorney aggressively representing you can make the case that it will be in the companies best interests to fairly compensate you in a written severance agreement, and in exchange for that compensation, the company will be protected and be the better for it.
Do I Have to Have a Valid Legal Claim to Get Severance?
The short answer to this question is no, but the company will require you to give up all of your legal rights in exchange for the severance package even if you do not have any legal rights to give up. The company essentially wants to make sure that you will not cause trouble and it will pay you to leave quietly. This being said, companies will pay more in severance to employees which the company believes can sue and win a case of discrimination, harassment, or retaliation. Again, this is where representation by an aggressive employment rights lawyer can really make the difference in terms of how much money you can take to the bank after being fired.
What Can I Expect By Way of Severance, Aren’t There Rules or Guidelines?
While there are no fixed rules or guidelines on the amount of severance, many companies base severance for lower level employees upon the number of years of service, giving a set number of weeks or months pay for each year worked. On the low end of the scale, the ratio of one week per year of service is used. This can be compared to "low blue book" for used cars. On the upper end, senior corporate executives may receive relatively huge sums in the hundreds of thousands of dollars. As a rule, the larger the amount of annual compensation paid to an employee, the more in total severance can be expected. It is not uncommon for higher paid employees to receive between six months to a year in compensation at the normal rate as a severance benefit.
What Are Examples of Terms that Can be Negotiated?
Some of the terms of a severance package that can and should be negotiated include the total amount of cash severance, whether the cash compensation will be continuance of salary paid over time or a lump sum payment, received immediately or at some later time, whether previously received bonuses or commissions will be paid, whether unused vacation, sick, or other leave pay will be included or paid separately, whether health benefits will be continued and if so, for how long will the company wholly pay, or contribute to the cost thereof, whether a positive recommendation will be provided, whether there will be a confidentiality agreement or non-disparagement clause, whether there will be any continuing obligations on the part of the employee to provide support or consulting services to the company.
What is a Typical Severance Agreement?
A severance agreement often is written like a contract or letter and generally includes a list of numbered paragraphs setting forth specific terms regarding the date of termination, severance payments, benefits, references, return of company property, and release of claims against the employer.
Are Severance Agreement Waivers Valid?
Most employees who sign waivers in severance agreements never attempt to challenge them. Some discharged employees, however, may feel that they have no choice but to sign the waiver, even though they suspect discrimination, or they may learn something after signing the waiver that leads them to believe they were discriminated against during employment or wrongfully terminated. If an employee who signed a waiver later files a lawsuit alleging discrimination, the employer will argue that the court should dismiss the case because the employee waived the right to sue. A waiver in a severance agreement generally is valid when an employee knowingly and voluntarily consents to the waiver. The rules regarding whether a waiver is knowing and voluntary depend on the statute under which suit has been, or may be, brought. The rules for waivers under the Age Discrimination in Employment Act are defined by statute – the Older Workers Benefit Protection Act (OWBPA). Under other laws, such as Title VII, the rules are derived from case law. In addition to being knowingly and voluntarily signed, a valid agreement also must: (1) offer some sort of consideration, such as additional compensation, in exchange for the employee’s waiver of the right to sue; (2) not require the employee to waive future rights; and (3) comply with applicable state and federal laws.
The Severance Agreement My Company Offered Has a Non-Compete Clause, Is that Legal?
Each State has its own rule on the enforceability of the so-called Non-Compete Clause, or "Covenant Not to Compete." In California, these clauses are generally not enforceable, except when the employee is actually selling an ownership interest in the business (as when a family owned company is purchased by a larger corporation). A gray area exists in connection with trade secrets, such as customer lists and product information, which remain the property of the employer. An employee must be very careful not to use or disclose confidential information obtained during the employment after the employment has ended, as this is a quick way to get yourself sued. Courts will find in favor of employers against former employees if the employee essentially stole company information and used it after the employment has ended.
Special Rules for Employees Age 40 and Over
In 1990, Congress amended the ADEA by adding the Older Workers Benefit Protection Act (OWBPA) to clarify the prohibitions against discrimination on the basis of age. OWBPA establishes specific requirements for a “knowing and voluntary” release of ADEA claims to guarantee that an employee has every opportunity to make an informed choice whether or not to sign the waiver. There are additional disclosure requirements under the statute when waivers are requested from a group or class of employees. Additionally, a waiver must provide the employee with at least 21 days to consider the offer. The regulations clarify that the 21-day consideration period runs from the date of the employer’s final offer. If material changes to the final offer are made, the 21-day period starts over. A waiver must give an employee seven days to revoke his or her signature. The seven-day revocation period cannot be changed or waived by either party for any reason. If the waiver of age claims fails to meet the specific requirements set forth in the ADEA, it is invalid and unenforceable. In addition, an employer cannot attempt to “cure” a defective waiver by issuing a subsequent letter containing OWBPA-required information that was omitted from the original agreement.
If you have been offered Severance Benefits, please feel free to give us a call at (858) 259-7790 or contact us online.
An employer’s decision to terminate or lay off certain employees, while retaining others, may lead discharged workers to believe that they were discriminated against based on their age, race, sex, national origin, religion, or disability. To minimize the risk of potential litigation, many employers offer departing employees money or benefits in exchange for a release (or “waiver”) of liability for all claims connected with the employment relationship, including discrimination claims under the civil rights laws enforced by the Equal Employment Opportunity Commission (EEOC), the Age Discrimination in Employment Act (ADEA), Title VII, the Americans with Disabilities Act (ADA), and the Equal Pay Act (EPA). Although senior-level executives negotiate severance provisions when initially hired, other employees typically are offered severance agreements and asked to sign a waiver at the time of termination.
Severance Agreements = Release of Claims!
A severance agreement is a contract, or legal agreement, between an employer and an employee that specifies the terms of an employment termination, such as a layoff. Sometimes this agreement is called a “separation” or “termination” agreement or “separation agreement general release and covenant not to sue.” Like any contract, a severance agreement must be supported by “consideration,” or the giving of something of value to the employee. An example of consideration would be a lump sum payment of a percentage of the employee’s annual salary or periodic payments of the employee’s salary for a specified period of time after termination. The employee’s signature and retention of the consideration generally indicates acceptance of the terms of the agreement, which in effect prevent the filing of a lawsuit by the employee.
Why Negotiate The Severance Terms?
Upon termination of an executive's employment, an employer will often offer a severance package, typically in exchange for a release of claims against the employer. Normally, the offered agreement will be a boiler plate document prepared by the company attorney and it will heavily favor the employer, to the detriment of the employee. This does not mean, however, that the terms cannot be changed through strenuous negotiation so that they more fairly represent the needs of the employee, and in order to maximize the chances of successfully negotiating the agreement, an employee should retain the services of an experienced employment rights attorney.
What are Your Rights to Severance Pay?
Very few employers set up a written severance plan package that affects all employees, but the vast majority of employers have no such written plan. Like most people, your employer most likely has not bothered to establish a written severance benefits program, and for this reason, you probably do not have a legal right to any severance pay, which is not required by law in the United States. Therefore, whatever rights that might exist are ones that you create by negotiating the terms of a written severance agreement after you have been notified by your employee that you are being terminated. Happily, the fact that severance pay is not legally required does not mean that it cannot be obtained, as it frequently is, through negotiation.
What Do You Have to Bargain With in Order to Obtain Severance Pay?
It may not seem obvious, but as a terminated employee, you are not completely without resources that can be bartered in exchange for severance pay. Even though the company has decided to terminate your employment, that does not mean that you have nothing to offer the company that can be turned into hard cold cash for you and your family. Companies want to make the termination transition smooth, they do not wish to create enemies, they want to know that their trade secrets are safe, and they would like to know you will not sue them and will cooperate if they need your cooperation for any reason after the employment has ended. Any attorney aggressively representing you can make the case that it will be in the companies best interests to fairly compensate you in a written severance agreement, and in exchange for that compensation, the company will be protected and be the better for it.
Do I Have to Have a Valid Legal Claim to Get Severance?
The short answer to this question is no, but the company will require you to give up all of your legal rights in exchange for the severance package even if you do not have any legal rights to give up. The company essentially wants to make sure that you will not cause trouble and it will pay you to leave quietly. This being said, companies will pay more in severance to employees which the company believes can sue and win a case of discrimination, harassment, or retaliation. Again, this is where representation by an aggressive employment rights lawyer can really make the difference in terms of how much money you can take to the bank after being fired.
What Can I Expect By Way of Severance, Aren’t There Rules or Guidelines?
While there are no fixed rules or guidelines on the amount of severance, many companies base severance for lower level employees upon the number of years of service, giving a set number of weeks or months pay for each year worked. On the low end of the scale, the ratio of one week per year of service is used. This can be compared to "low blue book" for used cars. On the upper end, senior corporate executives may receive relatively huge sums in the hundreds of thousands of dollars. As a rule, the larger the amount of annual compensation paid to an employee, the more in total severance can be expected. It is not uncommon for higher paid employees to receive between six months to a year in compensation at the normal rate as a severance benefit.
What Are Examples of Terms that Can be Negotiated?
Some of the terms of a severance package that can and should be negotiated include the total amount of cash severance, whether the cash compensation will be continuance of salary paid over time or a lump sum payment, received immediately or at some later time, whether previously received bonuses or commissions will be paid, whether unused vacation, sick, or other leave pay will be included or paid separately, whether health benefits will be continued and if so, for how long will the company wholly pay, or contribute to the cost thereof, whether a positive recommendation will be provided, whether there will be a confidentiality agreement or non-disparagement clause, whether there will be any continuing obligations on the part of the employee to provide support or consulting services to the company.
What is a Typical Severance Agreement?
A severance agreement often is written like a contract or letter and generally includes a list of numbered paragraphs setting forth specific terms regarding the date of termination, severance payments, benefits, references, return of company property, and release of claims against the employer.
Are Severance Agreement Waivers Valid?
Most employees who sign waivers in severance agreements never attempt to challenge them. Some discharged employees, however, may feel that they have no choice but to sign the waiver, even though they suspect discrimination, or they may learn something after signing the waiver that leads them to believe they were discriminated against during employment or wrongfully terminated. If an employee who signed a waiver later files a lawsuit alleging discrimination, the employer will argue that the court should dismiss the case because the employee waived the right to sue. A waiver in a severance agreement generally is valid when an employee knowingly and voluntarily consents to the waiver. The rules regarding whether a waiver is knowing and voluntary depend on the statute under which suit has been, or may be, brought. The rules for waivers under the Age Discrimination in Employment Act are defined by statute – the Older Workers Benefit Protection Act (OWBPA). Under other laws, such as Title VII, the rules are derived from case law. In addition to being knowingly and voluntarily signed, a valid agreement also must: (1) offer some sort of consideration, such as additional compensation, in exchange for the employee’s waiver of the right to sue; (2) not require the employee to waive future rights; and (3) comply with applicable state and federal laws.
The Severance Agreement My Company Offered Has a Non-Compete Clause, Is that Legal?
Each State has its own rule on the enforceability of the so-called Non-Compete Clause, or "Covenant Not to Compete." In California, these clauses are generally not enforceable, except when the employee is actually selling an ownership interest in the business (as when a family owned company is purchased by a larger corporation). A gray area exists in connection with trade secrets, such as customer lists and product information, which remain the property of the employer. An employee must be very careful not to use or disclose confidential information obtained during the employment after the employment has ended, as this is a quick way to get yourself sued. Courts will find in favor of employers against former employees if the employee essentially stole company information and used it after the employment has ended.
Special Rules for Employees Age 40 and Over
In 1990, Congress amended the ADEA by adding the Older Workers Benefit Protection Act (OWBPA) to clarify the prohibitions against discrimination on the basis of age. OWBPA establishes specific requirements for a “knowing and voluntary” release of ADEA claims to guarantee that an employee has every opportunity to make an informed choice whether or not to sign the waiver. There are additional disclosure requirements under the statute when waivers are requested from a group or class of employees. Additionally, a waiver must provide the employee with at least 21 days to consider the offer. The regulations clarify that the 21-day consideration period runs from the date of the employer’s final offer. If material changes to the final offer are made, the 21-day period starts over. A waiver must give an employee seven days to revoke his or her signature. The seven-day revocation period cannot be changed or waived by either party for any reason. If the waiver of age claims fails to meet the specific requirements set forth in the ADEA, it is invalid and unenforceable. In addition, an employer cannot attempt to “cure” a defective waiver by issuing a subsequent letter containing OWBPA-required information that was omitted from the original agreement.
If you have been offered Severance Benefits, please feel free to give us a call at (858) 259-7790 or contact us online.
