Things to Consider If Offered A Severance Package by Your Employer

In March 2020, the U.S. unemployment rate reached 4.4 percent (7.14 million) because of the COVID-19 pandemic. This means the number of unemployed increased by 1.35 million. These numbers continue to increase as more employees have been laid off or furloughed.  The total number of Americans who have filed initial jobless claims since March 14, 2020 is approximately 22 million, or roughly 13.5% of the labor force.  This means that the Coronavirus has erased nearly all of the 23 million new jobs created since the Great Recession.

Many of those employees receive no severance compensation and have no option but to apply for unemployment. But even the lucky ones who are offered severance compensation are usually asked to sign a severance or separation agreement. 

Here are some things to consider before signing a severance agreement. Don’t wait until the ink is dry to know what you’re signing!

Know Your Deadlines.

Most employers provide a deadline for employees to accept a severance package.  By law, if the employee is over the age of 40, he or she must be given 21 days to decide whether to accept the offer and 7 days to revoke acceptance. If the older worker is laid off as part of a larger group or class of terminations, such as a reduction in force (“RIF”), then he or she may have up to 45 days to review the agreement.

Don’t Assume Anyone Owes You Anything.

Unless (1) your employer contractually agreed to provide you with severance upon your termination, (2) there is a company policy requiring it, or (3) you are entitled to it under the federal Worker Adjustment and Retraining Notification Act (“WARN Act”) or its state equivalent, you are probably not entitled to severance. Tennessee is an at-will state, which generally means that, in the absence of a contract, employers can terminate you for any reason, good or bad, so long as it’s not an illegal reason. So if you can be fired for almost any reason, you should not expect your employer to pay you for the privilege of terminating your employment unless some other law requires it. Why is that important? Keep reading.

Remember that Hogs Get Fat and Pigs Get Slaughtered. 

If your employer offers a severance package, you can make a counteroffer, but you should do so with caution. Just as your employer typically does not have to offer you any severance, your employer can withdraw an offer if you do not accept it before it is withdrawn. 

Given the ongoing pandemic and the potential recession, now is probably not the best time to try to squeeze more money from your employer unless you have significant leverage, such as a potential legal claim against the employer or one of its principals. If you ask for more severance, your employer could withdraw the offer and you could end up with nothing or less than the initial offer.

With that said, employers usually won’t withdraw an offer of severance simply because an employee makes a counteroffer. They typically will simply reject the counteroffer and tell the employee to take it or leave it.  The reason most employers will not immediately withdraw following a counteroffer is that they want you to sign the releases in the agreement, which brings us to the next key point. 

Expect to Release All Claims Against Your Employer if You Sign.

Most severance agreements contain extremely broad liability releases that prevent you from raising any of a number of employment-related claims against them. Your employer wants these releases to ensure that you don’t make legal claims against it in the future.  If it doesn’t pay you severance, you have no incentive to provide the releases.  So both sides have something to gain from the agreement.  

What this means for an employee is that if you do have valid legal claims that the employer wants you to release, you may have more leverage in negotiations.  If, however, the employer believes you have no potential claims, it may be less likely to consider budging on the severance offer.

Be Creative.

Money is important, but it’s not everything. As you prepare to transition to the next phase of your career, think about what you intend to do next and would help with the transition. Some employers may not be willing to pay more severance, but perhaps they will extend health insurance benefits, provide outplacement service, or provide a positive job reference. Or maybe they can pay the severance in a lump sum rather than its standard payroll cycle to so you can deal with urgent financial needs.

The Devil Is In The Details.

While much of the language in severance agreements is often fairly standard from one agreement to the next (what is commonly referred to as “boilerplate”), you still have to read the language carefully to know what you’re signing.  Don’t assume that the entire severance agreement is boilerplate, and don’t assume that just because the language is boilerplate that it will be acceptable to you.  Your employer almost certainly drafted the severance agreement to protect its interests, not yours. 

In addition to releasing your claims against your employer or anyone associated with the employer, your agreement may include these clauses:

·      Restrictive Covenants. Your employer may include confidentiality, non-solicitation, non-interference, non-competition, intellectual property, and other post-employment restrictions in the agreement that can restrict what you do for months or years after your employment ends. If you already agreed to such restrictions, the severance agreement may incorporate or reaffirm those restrictions, or it may attempt to strengthen them. So you have to weigh the value of the severance against the impact of those restrictions on your future employment.

·      Jury Waiver and Alternative Dispute Resolution (“ADR”).  Many severance agreements require you to waive your right to a jury if you sue to enforce the severance agreement, and many require you to arbitrate any disputes. Arbitration can be expensive if you are paying your share of the cost of the arbitration.

·      Non-Disparagement.  Many severance agreements provide language preventing former employees from disparaging their former employer and its key personnel. This language is typically only drafted in favor of the employer, so the former employer is not precluded from disparaging former employees.  This is not unusual, because it is much easier for a former employee to avoid disparaging an employer than it is for an employer, particularly large ones, from ensuring that no one associated with the employer is disparaging the former employee. However, if you expect that someone at the company may try to disparage you later, you may be able to get the employer to agree that officers and directors or management level employees will not disparage you. 

·      Integration. Most severance agreements contain an integration (or “merger”) clause stating that the severance agreement represents the entire agreement between the employer and employees.  Sometimes, this takes the form of language stating that all agreements between you and your employer are included within the severance agreement itself.  To a layman, this language may sound like the agreement is incorporating other agreements or all of your conversations with your boss.  That’s typically not the case.  Rather, this language typically means that the only enforceable agreements are those drafted into the severance agreement.  Any promises made by either party outside of the severance agreement that are related to your employment are probably unenforceable. So, in other words, don’t assume that any promise not contained in the severance agreement is binding.

·      Remedies for Breach.  Because the employer drafts the agreement, the remedies for a breach of the agreement are typically drafted in the employer’s favor. If you breach the agreement, the employer can probably sue to recover its attorney’s fees and may even be able to recover any severance benefits paid to you.  But unless you negotiate an agreement that the prevailing party can recover its attorney’s fees, you may not be able to recover your attorney’s fees even if the employer breaches by failing to pay all of the agreed severance compensation.

Don’t Go It Alone.

You only have one chance to get this right, so you should consider retaining an attorney to review your agreement, explain the language to you, and to assist you during negotiations. The amount you may spend on an attorney can pale in comparison to the value of the claims you are releasing, the money you are leaving on the table, or the employment you are forgoing by agreeing to more post-employment restrictions.  

If you need assistance reviewing or negotiating your severance agreement, contact the attorneys at Meridian Law at (615) 229-7499, info@meridian.law, or www.meridian.law.