Most severance agreements start with reciting basic facts, such as the termination date (“separation date.”) It will describe who the parties to the agreement are (the company and the employee). It will then say that the employee agrees to certain things (the list can be quite long) in exchange for receiving certain things (usually additional pay and benefits) from the company.
It is important to know that the employer can require you to do or not do certain things in exchange for giving you more money than you are owed for wages at the time of your termination. Whether you agree to those terms is up to you. You do not have to sign a severance agreement, and your employer does not have to give you “extra” wages.
Employees often feel that they have no choice but to sign a severance agreement because they need the extra money that accompanies it. For example, a severance agreement can provide for sixth months’ pay, or 30 days, or one week’s pay for every year served. There is no formula. This pay can help ensure that the employee can stay afloat while he or she finds another job. Putting aside this issue, which is different for everyone, what else will the agreement include? In general, it will include a really long list of things that the employee agrees to do, or not do.
The most important thing that you will be asked to do in a severance agreement is to waive your right to make all sorts of claims later, even claims that you don’t know you have.
Every severance agreement that we have reviewed also contains a “general release.” When you sign a release, you are forever giving up a right to pursue a claim. The list of items that employers typically include in their releases is very long and includes claims for age discrimination, ADA violations, the Family and Medical Leave Act, OSHA, and on and on.** Most important, the employee will be asked to waive a provision of California Law (Civil Code Section 1542), which says that general releases do not apply to unknown claims.
When you waive Section 1542, you are agreeing that you are releasing claims you know about and claims you don’t know about, including workers’ compensation claims which may not be readily apparent at the time of the termination. Why do employers insist on a release as a condition of paying severance? They want to know that the relationship is over–for good. It is a business decision to pay some money now in order to ensure peace in the future.
What else can be included in a severance agreement? The list is endless. Typically, the employer wants the employee to agree to a number of things, including maintaining confidentiality, protecting trade secrets, return of company property, and the dreaded “non-disparagement clause.” We take a dim view of such clauses, which say things like “Employee will not make negative or disparaging remarks in writing or orally about Employer and Employer’s partners, etc.”
We don’t like these clauses because they are vague (“disparage” has different meanings to different people) and because the employer typically makes it one-sided. In other words, the employee can’t say anything negative but apparently the employer can. This seems not only unfair, but also a violation of one’s rights under the First Amendment. Therefore we counsel all our clients to either take the offending clause out, or at least insist that it be mutual.
Why do I need a lawyer to review the severance agreement? Unless I sign it, I won’t get the money and I need it. Besides, how can I change the terms?
Even employees who are terminated have a bargaining chip–their agreement to release all claims. Do not underestimate how eager your employer is to get that agreement signed. The agreement will certainly state that the employee was advised to have it reviewed by an attorney, so why not do so? In the myriad of agreements we’ve reviewed, we flagged many offending clauses and suggested appropriate edits or deletions. For example, sometimes employers who do business here in Silicon Valley are actually based in other jurisdictions, so they will include something like a non-compete clause. Here in California, such clauses are generally unenforceable. Or there will be a non-solicitation clause, where the employee promises not to solicit co-workers for his or her new company. Those can be enforceable, if limited in scope and duration However, we have also seen companies try to prevent the fired employee from hiring other employees, even if they leave the first company on their own. When we see terms like that, we advise the client to delete them.
What will it cost to have my severance agreement reviewed?
We almost always review severance agreements for a flat fee, so that you know your cost is fixed. Often times a personal meeting is unnecessary and everything can be done via email and telephone. Click here to see a review from a happy client whose severance agreement was reviewed by Nora. Losing one’s job is stressful and upsetting and we find that we generally help employees understand the process, negotiate a good deal and move on with their lives.
**Certain claims, including claims for undisputed wages owed cannot be released because of statutory protections. Be very wary about any release that demands you give up a claim for wages (including vacation time earned) in exchange for a severance payment.**