By Helen Halldorsson, Esq.
When an employee is terminated or laid off, their employer may offer them a severance payment, which is compensation given to an employee upon leaving the company. However, the employee usually has to sign a complex severance agreement in order to get the payment.
If you have been offered a severance, you may feel pressured to sign the agreement right away. But beware of the fine print and strings attached. For example, in order to receive the payment, employees are often required to give up all rights to sue the employer (this is called a “release”). Employees should understand that once they sign a release, it’s very difficult to overturn the release–even when it is uncovered that the employer used fraud, duress, or undue influence to pressure the employee to sign it. A lawyer can advise you on the ways in which you may still retain rights that are not affected by the release.
Employment laws change and evolve all the time. Here are 6 reasons why you should consult an experienced employment lawyer for help with severance pay issues:
A lawyer can help you weigh your options when you are under time pressure and stress. After a layoff, there is a lot to consider, and you may feel pressured to make big decisions in a short timeframe. Note that in California, a severance agreement must provide the employee notice about their right to consult an attorney. A reasonable amount of time (defined as at least 5 business days) must be given to consult with a lawyer if they choose to. A lawyer can help ease some of the burden during this time by answering your questions and helping you navigate the severance process.
It’s common to have a lot of questions after being offered a severance package. For instance, you may be wondering: How much severance pay am I entitled to? Is this agreement fair? Is this legal? Should I fight this layoff? Should I ask for more time to consider? These are all important questions that an experienced lawyer can help answer after evaluating your personal situation.
An experienced severance lawyer can walk you through all your options, and help you weigh out financial and legal considerations. They may be able to offer perspectives on the quality of the severance package you have been offered and how it compares to market-rate severance pay in various circumstances. At the very least, a lawyer may be able to buy you more time to consider the offer by intervening to negotiate on your behalf.
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. When a lawyer enters the picture, an employer may be willing to put more money on the table than before, especially if you have significant legal claims against the employer. When you’re laid off, you may lose out on bonuses, stock options, or variable compensation. Your lawyer may be able to help salvage at least some of that value.
A lawyer may also be able to get you better terms on aspects of the severance package aside from compensation. For example, an employer’s proposed terms may be one-sided (meaning the employee must agree to do or refrain from doing certain things, but the employer is not held to a similar standard). A lawyer may be able to negotiate for mutuality, making the agreement more of a two-way street. A lawyer may also be able to negotiate for additional terms that are favorable to the employee, such as a letter of reference from the employer on behalf of the departing employee.
Some employees try to negotiate on their own for a higher severance amount or better terms. However, that is generally a realistic prospect only if you are looking for a modest improvement in what has been offered. The reason is simple: lawyers can add value by framing and explaining your legal claims in a persuasive manner and by showing the employer that you are serious about pursuing them.
A lawyer can help you understand the legal rights you are giving up by accepting a severance package. Employers use severance agreements to avoid lawsuits. Almost all severance agreements require employees to give up their right to sue their employer in exchange for receiving the severance pay. By meeting with an attorney, you can discuss the merits of your potential legal claims. They can help you determine whether you should pursue a better severance package, or decline the severance package you have been offered in order to pursue your legal claims.
Determining whether you have legal claims that may be worth pursuing requires careful assessment. Consider the following:
Do you believe you were wrongfully terminated or selected for layoff?
Were you paid all wages, including overtime, that you were legally owed?
Were you harassed or discriminated against at work?
Were you denied a reasonable accommodation, or medical or family leave rights?
Are there other claims you may have?
If so, you may have claims worth pursuing. Sometimes, these claims are worth far more than the severance amount being offered to you, in which case you may wish to decline your employer’s offer. A lawyer can help you evaluate.
A lawyer can advise you on the practical and financial consequences of the severance agreement. Severance payments come with tax consequences. Generally, severance pay is considered income, which means the employee will have to pay local, state, and federal income taxes on the severance amount. An experienced severance lawyer will assess whether the agreement can be structured in such a way to reduce the amount of taxes the employee owes.
If the employer wants to pay the severance in installments instead of one lump sum, an attorney can assess how those installments will affect the employee. For instance, installment payments may affect the employee’s right to seek unemployment compensation. Installments may also force employees to obtain a new insurance policy or switch to COBRA insurance (a type of insurance stemming from a federal law that gives workers the right to keep their employer’s group health plan after that insurance would end–due to job loss, for example). A lawyer may also advise you as to whether there’s any risk that the employer will go out of business before they can make all of the installment payments.
An experienced lawyer can advise you on these and other practical matters.
A lawyer can help you understand your obligations under the contract and the consequences for breaking them. In most severance agreements, the employee has obligations. It is critical that you understand what those obligations are, so that you do not run afoul of them. Many of the terms in the agreement can be confusing. Topics commonly addressed in severance agreements include:
Confidentiality. Most agreements require some amount of confidentiality, but the level of confidentiality restrictions can vary. Usually, the parties to a severance agreement are restricted in what they can and cannot reveal about the agreement itself. The content of the agreement is often completely confidential, with exceptions for disclosure to certain individuals or entities, such as family members, financial advisors, and tax authorities. Confidentiality restrictions may also apply to a company’s trade secrets, for instance. A lawyer can work on securing the appropriate confidentiality terms for you.
Non-disparagement. Many agreements limit your ability to say negative things about your employer, so your speech may be restricted by the agreement. A lawyer can explain these limits to ensure that you understand and are comfortable with them.
Limitations on post-termination conduct. Many agreements require the employee to promise that they will not solicit the employer’s current employees to leave the company or solicit the employer’s customers to take their business elsewhere. These are called “non-solicitation” clauses.
Many agreements also require the employee to promise that in the future they will not use any information obtained during the course of their employment with the company. This can have significant implications in the tech industry, for example, where the use of certain data and intellectual property can be very valuable.
A lawyer will help you understand these limits and how they will affect you going forward.
In addition to the terms you are agreeing to, it is important that you understand the consequences of failing to uphold your end of the bargain. If, for example, you agree not to disparage the company and then go on to do so, your former employer may be able to demand a refund of any severance money you received and/or additional monetary damages. You could also be held responsible for the company’s legal fees if there is ever a dispute as to whether one of you breached the agreement, and your former employer is found to be correct. A lawyer will help you understand these consequences as written in your agreement.ff
A lawyer can help you understand what is and is not legally enforceable in your severance agreement. In California, the law protects employees by deeming certain clauses in employment agreements unenforceable, even if the employee agrees to them. One of the reasons for these protections is to fight back against employers who use legal tactics to silence survivors of workplace harassment and discrimination.
For example, in California effective January 1, 2022, it is unlawful for an employer to include in any agreement a non-disparagement clause that prohibits an employee from disclosing information about illegal workplace conditions, unless the agreement includes language to this effect: “Nothing in this agreement prevents you from discussing or disclosing information about unlawful acts in the workplace, such as harassment or discrimination or any other conduct that you have reason to believe is unlawful.” This means that a non-disparagement clause cannot have the purpose or effect of denying an employee the right to disclose information about unlawful acts in the workplace. If it does, it is not enforceable. For more information about these protections, visit our blog post on California’s “Silenced No More Act.”
A lawyer can help you identify which clauses in your agreement are unenforceable and explain what legal rights you still retain, even if it appears on paper you have released them.
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In sum, an experienced attorney can provide value during the severance process by helping you weigh your options, negotiate a better deal, understand your legal rights, navigate the practical and financial considerations, and identify troubling clauses in your severance agreement (including those that may be unlawful).
Before you sign a severance and release agreement, contact our experienced California lawyers who can advise you of your rights. Call us at 888-686-1918 to speak with one of our employment attorneys today.