Severance Agreement
Severance agreements are also called (or are clauses within) separation
agreements or termination agreements. They often
accompany non-compete and non-disclosure agreements
or clauses.
A severance agreement specifies the terms of your employment
termination, such as a layoff. It probably
will waive your
right to sue your former employer, as do typical employee severance agreements
these days.
An agreement (or clause) that waives your right to sue your employer is
generally referred to as a release or a release of claims, meaning
that you agree to forgo legal claims and release your employer from liability by
signing it. In exchange, your employer will likely offer "consideration"
in the form of initial or extra severance pay.
In the absence of another agreement or contract that
entitles you to receive severance pay, your soon-to-be former employer
likely has the right to require you to sign a severance agreement to receive
it. It's a legal "bribe" of sorts, that will help your employer
avoid enforceability problems.
Your employer may not, however, rightfully coerce you
into signing a severance agreement, such as by threatening to withhold wages
and other pay that you've already earned.
Severance agreements are generally enforceable in
the states, if they:
- Are reasonable in scope when waiving employee rights to sue
- Don't violate laws (such as discrimination
laws)
- Are supported by consideration (severance pay) other than that already
earned
- Were knowingly and voluntarily signed, with a reasonable amount of
time to first consider the consequences and consult an attorney
Still, employees have sued their former employers and won, despite that
they signed otherwise enforceable severance agreements.
However, circumstances typically must be extraordinary to grant employees
the right to break their severance agreements and sue anyway. For example,
in one such lawsuit, a court determined that an employee signed a severance
agreement under duress.
Subsequently, the court declared that the severance agreement was null
and void, and allowed the employee's lawsuit to proceed. In turn, the
employee won.
To discover to what extent a severance agreement is generally enforceable
in the state in which you work, start by contacting the relevant state
labor department. For enforceability specifics or personalized legal
advice about breaking your particular agreement, you'll likely need to
consult an attorney.
Many employees quickly sign severance agreements just
to receive the "bribe,"
without truly understanding that they've signed legally-binding contracts
that waived some of their most significant employee rights!
If you have questions or doubts about signing a severance agreement, then
it's a good idea to first consult an attorney.
To avoid enforceability problems, your employer will likely give you a
reasonable amount of time to sign, so that you may consult an attorney.
In fact, your employer must give you at least 21 days to consult an attorney,
if signing waives your rights under the Age
Discrimination in Employment Act.
Consulting an attorney before signing
(or breaking) your severance agreement will probably cost you a fee; but,
it could save you a lot of heartache and much more in legal expenses down
the road.
For more information, see Understanding
Waivers of Discrimination Claims in Employee Severance Agreements published
by the U.S. Equal Employment Opportunity Commission.
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