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 by any name is a contract that specifies the terms of your employment termination, such as during a layoff.
It probably will waive your right to sue your former employer, as do typical employee severance agreements these days. It might also waive one or more of your other legal rights, such as to collect unemployment benefits.
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, a legal "bribe" that will help your employer avoid contract enforceability problems.
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 the money. Your employer may not, however, rightfully coerce you into signing, 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
- Don't violate laws (such as discrimination laws)
- Are supported by consideration 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 further avoid enforceability problems, your employer will likely give you a reasonable amount of time to sign so that you may do just that. In fact, your employer must give you at least 21 days to consult an attorney, if signing waives your rights under the Federal 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. Additionally, an attorney might be able to negotiate better consideration for waiving your legal rights.
For more information, see Understanding Waivers of Discrimination Claims in Employee Severance Agreements published by the U.S. Equal Employment Opportunity Commission.