Employers often offer severance payments to employees who are terminated or laid off. Usually, that payment depends on the employees signing lengthy severance agreements with complicated terms and conditions. You may feel time pressure to sign the agreement right away. But beware the fine print and strings attached – for example, employees are often required to give up all rights to sue the employer (the “release”) or to abide by strict non-disclosure and non-solicitation requirements. Employees should understand that once they sign a release, it’s very difficult to overturn the release – even when fraud, duress, or undue influence were used to pressure the employee to sign.
You should consult with an experienced employment lawyer so that you make an informed decision on how to handle severance pay issues. Here are the top 5 reasons why:
1. A lawyer can help you weigh your options when you are under time pressure and stress.
You may be wondering: What amount of severance am I entitled to? Is this fair? Is this legal? Should I fight this layoff? Do I ask for more time? An experienced severance lawyer can walk you through all of your tactical and strategic options, and weigh the relevant financial and legal issues. An experienced severance lawyer may be able to offer perspectives on what is considered market severance. At the very least, they may be able to buy more time by intervening to negotiate on the employee’s behalf.
2. A lawyer can help you negotiate a better deal.
With a lawyer’s help, you may be able to negotiate for more money or better terms. An employer may be willing to put more money on the table than what they’re currently offering, especially if you have significant legal claims. In addition, if you are losing out on significant incentives or variable compensation, or stock options, a lawyer can help you navigate your options for salvaging at least some of the value of those incentives. In addition, you may be able to get better terms on things other than compensation. For example, is the agreement mutual in its terms, or are many of the obligations one-sided? Does the agreement provide for a job reference?
Some employees try to negotiate on their own for a higher severance amount. However, that is a realistic prospect only if you are only looking for a modest increase in what has been offered. The reason is simple: lawyers can add value by framing/explaining your legal claims and by showing the employer that you are serious about pursuing them.
3. A lawyer can help you understand the legal rights you are giving up.
Employers use severance agreements to avoid lawsuits. Almost all severance agreements require employees to give up their right to sue their employer. By meeting with an attorney, you can discuss the merits of your potential claims and whether it is worth passing up the offered severance to pursue your claims or to pursue a better severance package.
You must make a careful assessment of whether you have legal claims that may be worth pursuing. Do you believe you were wrongfully terminated or selected for layoff? Were you paid all of the wages, including overtime, due to you? Were you harassed or discriminated against at work? Were you denied a reasonable accommodation or leave rights? Are there other claims you may have? Sometimes, these claims are worth far more than the severance amount being offered to you.
4. A lawyer can advise you on the practical and financial consequences of the severance agreement.
The tax consequences. Generally, severance pay is considered income which means the employee will have to pay local, state, and federal income taxes on the amounts paid. An experienced severance pay lawyer will review whether the agreement can be structured to reduce the amount of taxes due.
If the employer wants to make payouts instead of one lump sum payment, an attorney may review how payouts affect your right to ask for unemployment compensation; how payouts affect whether you keep your old insurance or must switch to COBRA or a new policy; and whether there’s any risk the employer might go out of business before you can be paid in full.
5. A lawyer can help you understand your obligations under the contract.
Most severance agreements impose contractual restrictions on the employee, so it is critical that you understand what they are and what the consequences are if you do not hold up your end of the bargain. Many of terms can be confusing. Here are some examples:
- Confidentiality. Most agreements require some amount of confidentiality, but the stringency of the confidentiality restrictions can vary.
- Non-disparagement. Many agreements limit your ability to say negative things about your employer, so your speech may be restricted by the agreement.
- Limitations on post-termination conduct. Many agreements require a promise that you will not solicit employees or customers or use information that you have obtained from your employment with the company.
It is important that you understand what these restrictions are so that you do not run afoul of them. Speak with an experienced California lawyer before you sign a severance and release agreement.