When an employer or employee decides to end the employment relationship, the parties may enter a severance agreement to resolve all outstanding issues between them and facilitate a clean separation in which each party understands their rights and obligations. However, complicating factors in an employer-employee relationship can make negotiating a severance agreement challenging. A knowledgeable attorney from Stanfield Bechtel Law can help an employer or employee negotiate a fair and favorable agreement that protects their rights and interests. Contact us today for an initial case review to discuss severance agreement terms and learn how our firm can advocate for you during negotiations. 

What Is a Severance Agreement?

A severance agreement governs the orderly termination of an employment relationship by outlining an employer’s and employee’s obligations at the end of and after their relationship. Severance agreements help employers by resolving any outstanding legal issues or disputes between them and a departing employee. Severance agreements also help employees by providing compensation that can offer a financial cushion as they look for their next job. 

Employers may seek to negotiate severance agreements in various contexts, including:

  • Layoffs of multiple employees during downsizing or corporate restructuring
  • Layoffs of redundant employees following mergers or acquisitions
  • Key employees’ voluntary departure
  • Termination for cause or resignation instead of a termination for cause
  • Employees’ resignation amid a legal dispute between the employee and the employer

Severance agreements will cover various topics depending on the circumstances surrounding an employee’s departure, such as:

  • Severance Pay – Severance agreements govern the final payments an employer makes to an employee, including the final paycheck, cashing out accrued paid time off (PTO), paying deferred compensation, and other financial compensation to settle claims or secure restrictive covenants that bind the employee after their employment ends. 
  • Continuation of Benefits – A severance agreement may provide a temporary continuation of an employee’s benefits, such as health insurance, for a limited period after their employment ends, whether through COBRA benefits or benefits provided by the employer. 
  • Non-Disparagement – A non-disparagement clause in a severance agreement may obligate the employee to refrain from disparaging the employer to clients, on social media, or in other public forums. Non-disparagement clauses may also require the employer not to provide a negative reference or to give a favorable one if requested. 
  • Restrictive Covenants – Severance agreements may include non-compete, non-solicitation, or no-hire provisions that prevent employees from competing against the employer in a specific industry and geographic area for a limited period after their employment ends (such as one year).
  • Confidentiality – A severance agreement may include confidentiality provisions requiring employers and employees to keep the agreement’s terms secret. 
  • Release of Claims – Employers frequently negotiate language that involves an employee’s release of claims they have or may have against the employer, or a mutual release of claims between the employer and employee. Releases in a severance agreement facilitate a clean break of the employer-employee relationship.

Why You Should Negotiate a Severance

Employers and employees often negotiate the terms of their severance agreements to reach a resolution that both parties find fair, given the circumstances of their relationship. Some of the reasons why employers and employees should negotiate severance agreements include:

  • Employees can secure additional severance pay or continuation of health coverage or  other benefits
  • Employers may obtain stronger protections in restrictive covenants or non-disparagement clauses
  • Employees can remove or tone down clauses that can impair their future employment prospects

Both employers and employees should have their severance agreements reviewed by experienced employment law counsel to understand the agreement’s implications before signing. Signing an agreement without legal review could have devastating consequences, such as waiving critical rights or losing essential protections. 

Key Legal Considerations

Parties should familiarize themselves with critical legal considerations when negotiating severance agreements, such as:

  • Waivers of Legal Claims Under Employment Laws – Severance agreements may require employees to waive claims under various state and federal employment protection laws or to agree to arbitrate such claims. However, some statutes may preclude waiving claims or the right to a jury trial for claims under those statutes. 
  • Compliance with Notification Requirements Under State and Federal Law – The Older Workers Benefit Protection Act imposes specific notification requirements for severance agreements presented to workers 40 and older, including notifying the worker of their rights to file a claim under the Age Discrimination in Employment Act, their right to seek legal counsel, their right to have 21 days to consider the agreement (45 days if part of a group termination), and their right to revoke an acceptance within seven days. The WARN Act also gives employees 60 days’ notice before a qualifying mass layoff or plant closure. 
  • Tax Implications of Severance Pay – Various forms of severance pay may trigger income taxes for employees and payroll taxes for employers. 
  • Effect on Unemployment Benefits – Employees should consult legal counsel to understand how accepting compensation under a severance agreement or how the agreement classifies the termination of their employment may affect their right to unemployment benefits. 

How an Attorney Can Help in Severance Negotiations

An attorney can help employers and employees reach a fair and favorable severance agreement by:

  • Reviewing proposed agreement language
  • Identifying unfair or unenforceable agreement terms
  • Identifying outstanding issues that agreements should address
  • Explaining the legal implications or consequences of the agreement terms

Common Employer Tactics and How to Respond

Employees negotiating severance agreements with their employers should recognize the tactics that employers use to secure agreement terms more favorable to them, such as:

  • Using a “take it or leave it” approach that implies the employer won’t negotiate terms
  • Pressuring employees to sign the agreement as soon as possible
  • Providing incomplete or misleading explanations of legal rights

Employees should not feel compelled to sign severance agreements until they’ve spoken to an employment law attorney. 

Contact Our Employment Law Attorneys Today

When an employment relationship comes to an end, having experienced legal counsel can help you negotiate a fair and favorable severance agreement. Contact Stanfield Bechtel Law today for an initial consultation with our employment law attorneys to learn more about severance agreements and discuss how our firm will vigorously negotiate for your interests.