So I Got a Severance: Now What?
So I Got a Severance: Now What? Top Considerations for Reviewing a Severance
Termination. Layoff. Separation. Downsizing. Outsourcing. No matter how the news of your separation of employment is delivered to you, the disappointment is usually the same. And beyond disappointment, there may be fear – fear about future income, health insurance coverage, and other benefits.
What is a Severance Agreement?
Then enter the severance agreement. First, what is a severance agreement? A severance agreement is a contract typically offered by an employer to an exiting employee offering certain terms (usually monetary) in exchange for a release (and other promises). In short, a severance usually means money in exchange for not suing your employer.
Am I Legally Entitled to a Severance Agreement?
But should you always expect to receive a severance agreement offer from a layoff? Unfortunately, in most situations, severance is a gift and there is no legal requirement for an employer to offer severance, meaning that even a dollar of severance from your employer is more than they are legally obligated to offer you. But there can be special circumstances when severance is required. For example, maybe you have an employment agreement that requires your employer to pay you a certain amount of severance in the event of a “no cause” termination (usually requires you to sign a release of potential claims). Or maybe you are subject to a Collective Bargaining Agreement that entitles you to a severance. Some Handbooks may also outline the company’s severance policies (such as 1 week for each year of service).
When Advanced Notice of a Mass Layoff Is Required
And then there are some situations where an employer may not be legally obligated to pay you a severance, but they may be obligated to give you advanced notice of a layoff. Under federal law (the Worker Adjustment and Retraining Notification Act “WARN Act”), certain businesses (those with 100+ employees) are required to provide advanced notice of any “employment losses” before they happen, such as a plant closing or mass layoff. In covered situations, an employer must give at least 60 days written notice to affected employees when proceeding with a plant closure or mass layoff. While the employer can provide less notice, if it does, it must pay the affected employees for the full 60-day period, unless there are unforeseeable business circumstances. Many states also have their own WARN Acts (commonly called “mini-WARN” Acts), which expand on the rights covered under federal law. For example, California’s Cal-WARN Act uses different criteria than the federal law for counting the number of employees (expanding employers covered under the Act) and triggers notice requirements in more situations than the federal law. Violations of California’s Cal-WARN Act may include a $500 penalty for each day of the employer’s violation.
What if your employment is not covered under an Act like a WARN Act or subject to a severance agreement? It is possible that your employer may still be willing to offer you some sort of severance (in exchange for a release) if you just ask for one. But remember, in most situations, severance is a gift. Why is this important? When offered a severance, some employees may raise concerns about the amount or terms of the severance not being “enough.” And while it is absolutely reasonable for any employee to have concerns about finances and benefits in the event of termination, making unreasonable demands for modifications or increases in an offer of severance could result in the severance being revoked – and without further recourse. And this again goes back to the mantra: severance is (usually) a gift.
So what are the top things an employee offered a severance might consider when reviewing the terms of a severance? We include a non-exhaustive list, below:
1. If you accept (sign) the severance, you are usually giving up any rights you may have to bring a lawsuit or claims against the employer.
Why is this important? Maybe you have concerns that your termination was suspect because you were terminated when a less-qualified employee in a similar role was not. And maybe you noticed a pattern by the employer of terminating other employees like you, such as employees over 40 in lieu of less-qualified younger workers or females in lieu of less-qualified males (for an overview of protected traits in California, see here). Or perhaps you had concerns that you were paid less than other employees because of your protected traits. If you sign the severance, you are usually giving up the right to challenge those employment practices at a later time.
But what about claims for unpaid wages, overtime, bonuses, or vacations? While you may still have an avenue to pursue certain wage-related claims despite signing a severance agreement, you may face challenges from signing a severance agreement. This is because most severance agreements include a verification statement for you to acknowledge that by signing the severance, you admit that you have been paid all overtime, wages, bonuses, etc. If you decide to later challenge these payments, you’ll have to reconcile that statement against your challenges of payment.
And then there is the issue of not knowing that you have a potential claim until a later time. For example, what if you learn from a former co-worker a month after signing your severance that your boss made a discriminatory statement about you and your termination (like, “I’m glad we cleaned house of all those old-timers”). Unfortunately, in most cases, by signing a severance, you are giving up the right to bring all known claims, as well as unknown claims, which you may learn at a later date.
The takeaway from this? Before you sign your severance agreement, if you are concerned about the circumstances surrounding your termination, consider reviewing your situation with a qualified severance review employment attorney who can guide you on best practices.
2. Make sure all promised terms and benefits are specifically included in writing in your severance agreement.
What do we mean by this? If there was a term or benefit promised to you by your employer (including a manager) related to your separation, it needs to be specifically written into the severance agreement. For example, maybe your employer agreed to cover the cost of your health insurance for six (6) months, or maybe your severance says you’ll get paid for two (2) months of severance, but they have also verbally promised to keep you on paid administrative leave for an additional month. If it’s not in writing in your severance agreement, it may not be enforceable. In other words, if these additional promises are not specifically written out in your severance agreement and the employer does not follow through on their promises, you may have waived your entitlement to those benefits by signing the severance. This is because most severance agreements have a provision called a “merger clause” (language that says something like this agreement is the only agreement between the parties on these matters. It supersedes all other agreements).
But what if the other terms and benefits are actually in writing? Like a bonus agreement or a stock option agreement? Again, if those agreements are not specifically listed in the severance agreement, you may be waiving your right to enforce your entitlement to benefits under those agreements.
The takeaway? If it was promised to you, get it in writing in the severance agreement before you sign it.
3. The Choice of Law of the Severance Agreement Matters
What does this mean? Most severance agreements will have a “choice of law” provision, which is language in the agreement that specifies which law controls the agreement. This is important for many reasons, including where you may have to enforce the agreement if the employer does not perform on its promises as well as the state law that a court may use to interpret the agreement. Some states, like California, may have laws prohibiting an employer from applying another state’s law to a severance agreement for employees who are citizens of its state (or primarily working in that state). This may be important if the employer includes provisions in the agreement that would not ordinarily be legal under your state’s law. For example, and generally, in California, restrictive covenants (like non-competes and non-solicitation provisions) may be prohibited under state law as an illegal restraint on trade. An agreement (or certain provisions of the agreement) may be unenforceable or void if it applies a different state’s law to a severance agreement for a California employee (such as Florida, where these restrictive covenants may be enforceable).
The takeaway? Check your agreement to see which state law is being applied to the agreement. If you have concerns about the terms of your agreement or the application of that state’s law to your agreement, consider discussing it with a qualified severance review attorney.
4. Under Certain Circumstances, You May Be Legally Entitled to Time to Review Your Severance Agreement (and with an attorney of your choice)
Federal law provides allowances for most employees over the age of 40 to have at least 21 days to review the terms of an agreement. This includes the opportunity to review the agreement with an attorney of your choice.
And in California, new regulations (effective January 1, 2022) require that an employer gives an employee or former employee at least five (5) business days to consider a severance agreement. The law also requires an employer to allow an employee to consult with an attorney of their choice about the severance.
Unfortunately, not all states provide employees with the right to additional time to review a severance. In some situations, making a request as a group of employees (or with another employee other than yourself) for time to review the severance agreement may be protected under federal law, even if the time to review is not guaranteed by state or federal law.
The takeaway? If you are not sure if you fall within a state or situation with a guaranteed right for time to review your severance (with an attorney), you should consult with a qualified severance lawyer in your state.
5. You may be able to negotiate the terms of the severance agreement before signing
While it is true that you may run the risk of a severance agreement being revoked (without recourse) if you reject the terms of the severance, there still may be ways for you to explore alternative terms of the agreement with your employer. Oftentimes, your approach and tone in negotiation matters. Remember the saying, “You get more bees with honey.” Responding aggressively or in a take-it-or-leave-it manner to your employer in response to a severance may result in a revocation of your severance, especially if the employer thinks you are being unreasonable and if you are without leverage (potential claims) to use as negotiation. A response acknowledging appreciation for an offer of severance (especially when it is not legally required) and inquiry as to opportunities for modifications may result in more productive dialogue. For example, a response that begins with:
“Thank you for the offer of the severance. While I appreciate the offer, I wanted to inquire about opportunities for modifications so that I can feel more comfortable with signing it…”
Or, in situations where the severance excludes certain terms to which you were promised:
“Thank you for the offer of severance. While I appreciate the offer, after reviewing it, I noticed that the terms do not include [add in terms]. I would like to discuss including these as part of the offer…”
In most situations, the employer’s worse response will be “no” and then it is up to you, as the employee, to decide whether you want to accept the terms “as is” (or seek legal advice on how to proceed).
Conclusion
Navigating severance agreements can be overwhelming and confusing. If you are unsure of your rights under the law or need assistance with understanding the terms of your severance agreement, it is important to take prompt action to speak with a qualified severance review employment attorney before signing your agreement. Looking for a "severance attorney near me?" Wagner Legal, P.C. offers severance review services for employees in California, Florida, and Ohio. Contact Wagner Legal, P.C. today for a severance review consultation.
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