For countless reasons, separation from a job is stressful—whether it’s voluntary (quitting) or involuntary (being fired). Employees want to leave on good terms, receiving all compensation due to them for earned wages and benefits before separation. Employers too want separation on good terms, with iron-clad assurances that former employers won’t assert claims or file lawsuits after leaving.
The simplest way to ensure an amicable separation is with a contract that outlines the terms of employment separation, often called a Severance Agreement. A Severance Agreement (also known as a separation agreement or exit agreement) is a contract between an employer and employee documenting the rights and obligations of the parties following job termination. Among other things, the contract specifies any severance pay and benefits and the conditions under which it will be provided or withheld.
Most employers don’t have uniform severance pay policies for their employees, and decisions about whether to present a Severance Agreement and its terms are made on a case-by-case basis. For that reason, discussions about Severance Agreements usually take place behind closed doors, shrouded in secrecy. As a result, it’s difficult for employees to evaluate whether a proposed Severance Agreement is fair and whether to sign it.
Here are several common topics to consider before signing a Severance Agreement:
- General Release. Employers typically insist on a general release of all claims. Under a general release, the employee must give up all claims, known and unknown, against your former employer (except those that cannot be waived under the law). Some employees negotiate a mutual release, under which the employer gives up all claims against the employee.
- Settlement Payment. Employers seeking a general release typically offer some sort of financial incentive in exchange for that release. There is no hard and fast formula. Payments between one week to one month of pay for every year worked are common. But in situations where the employee has significant potential claims, employers often pay more, much more.
- Confidentiality. Employers typically demand that the terms of the Severance Agreement must be kept strictly confidential.
- Non-Disparagement. Some employers will ask that employees contractually agree not to disparage the employer or speak poorly of the employer after termination. Some employees ask that non-disparagement terms be mutual.
- Non-complete. Depending on the circumstances, sometimes employers insist that employees agree that they will not work for competing companies within a certain region for a specific time-frame. Non-compete agreements are disfavored under California law and often unenforceable.
- Employment References. Severance Agreements should address exactly how the former employer will respond to inquiries from prospective employers. Some employees seek a mutually agreed upon letter of reference signed by the employer.
- Re-employment Rights. Severance Agreements typically describe any ongoing employment relationship, or any bar to a future employment relationship.
- Arbitration. Some employers push for an arbitration provision under which disputes concerning the Severance Agreement must be submitted to binding private arbitration, not court. Employees who agree to that term waive their constitutional right to a jury trial.
- Timing. The proposed Severance Agreement may give the employee a limited time to consider whether to accept. Always be keenly aware of the deadlines. (Workers over 40 years old must be given at least 21 days to consider the agreement and 7 days to revoke the agreement after signing it.)
Before signing a Severance Agreement, you need to be fully informed about the value of the rights that you will be giving up. For example, if your termination was unlawful, the value of your potential claim may far exceed the value being offered to you in the Severance Agreement. You need to be fully informed about all compensation owed to you (e.g., unpaid wages, commissions, bonuses, accrued paid time off, etc.). You must understand the consequences of accepting the terms of the proposed contract.
Markson Pico LLP can help. Our experienced employment lawyers will consult with you to assess whether you will be giving up any valuable claims. We will review the proposed Severance Agreement with you, explaining the terms and suggesting areas where you should seek modifications. We will also negotiate and advocate on your behalf to push for additional compensation and more favorable non-monetary terms. Call Markson Pico LLP today.