Severance Agreements: Negotiating Fair Terms and Protecting Your Rights

By Douglas Lipsky
Partner

When an employment relationship reaches its end, a severance agreement often comes into play. This agreement can significantly impact your financial and professional future. This blog is a primer on the essentials of negotiating fair severance terms and protecting your legal rights, ensuring you leave your job with the benefits you deserve.

Understanding Severance Agreements

A severance agreement is a contract between an employer and an employee that outlines the terms of the employee’s departure, including:

  • Severance pay – This is a financial payment offered to the employee. It can be a lump sum or structured over a period and is often based on factors like length of service and position.
  • Continuation of benefits – Details how long benefits like health insurance will continue post-employment.
  • Non-disclosure agreement (NDA) – This clause prevents the employee from sharing proprietary or confidential information.
  • Non-compete clause – This restricts the employee’s ability to work in similar industries or with competitors for a certain period.
  • Release of claims – This section often requires the employee to waive their right to sue the employer for issues related to their employment.

Grasping these terms is the first step in ensuring you walk away with a severance package that respects your contributions and secures your professional future. Remember, the specifics of each agreement can vary, so it’s important to review and understand every part of the document presented to you.

The Importance of Negotiation

Negotiating your severance terms is a crucial step that should not be overlooked. Many employees make the mistake of accepting the initial offer, potentially leaving valuable benefits on the table. Remember, the initial proposal is often a starting point, and employers typically expect some negotiation. By engaging in this process, you can significantly improve the terms of your severance package.

Negotiation can be particularly beneficial in several key areas. For instance, you may be able to increase the amount of severance pay, especially if you have a long tenure or a senior position. Another area for negotiation is the duration and extent of continued benefits, like health insurance, which can be vital as you transition to new employment. Additionally, you can discuss reducing the scope of any non-compete clauses, which can impact your future job prospects.

Finally, it’s important to approach these negotiations with a clear understanding of your worth and a readiness to advocate for yourself. A well-negotiated severance agreement not only provides financial stability but also acknowledges your contributions to the company. Remember, this is about securing a fair and respectful end to your employment relationship and setting a positive tone for your future endeavors.

Tips for Effective Negotiation

To negotiate effectively, consider these tips:

  • Consult with an employment lawyer to understand your rights and the fairness of the proposed terms.
  • Understand what you’ve brought to the company. This knowledge strengthens your negotiating position.
  • Be prepared to walk away. Sometimes, the best negotiation tactic is being willing to reject an unsatisfactory offer.

Legal Rights and Severance Agreements

Understanding your legal rights is key to negotiating a severance agreement. Many employees are not fully aware of their rights and may inadvertently agree to terms that are not in their best interests. First, it’s essential to know that you are not legally required to sign a severance agreement immediately. You have the right to take time to review the agreement, seek legal advice, and consider the implications of what you’re agreeing to.

A common area of concern is the release of claims. This part of the agreement usually asks you to waive your right to sue the employer for issues related to your employment. While this is standard, it’s crucial to ensure you’re not waiving rights unintentionally, especially in cases of unlawful employment practices. 

Another aspect to be wary of is a non-compete clause, which could limit your future employment opportunities. These clauses should be reasonable in terms of scope, geography, and duration.  Additionally, it’s important to understand that severance agreements can sometimes include clauses that may not be legally enforceable. For example, overly broad non-disclosure agreements can be challenged in court. 

The Bottom Line

Navigating severance agreements can be daunting, but with the right approach, you can secure terms that respect your contributions and protect your future. Remember, it’s not just about what you’re offered; it’s about what you negotiate. Consult an experienced employment lawyer for informed guidance before you sign a severance agreement.

About the Author
Douglas Lipsky is a co-founding partner of Lipsky Lowe LLP. He has extensive experience in all areas of employment law, including discrimination, sexual harassment, hostile work environment, retaliation, wrongful discharge, breach of contract, unpaid overtime, and unpaid tips. He also represents clients in complex wage and hour claims, including collective actions under the federal Fair Labor Standards Act and class actions under the laws of many different states. If you have questions about this article, contact Douglas today.