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When an employment relationship ends, an employer may offer a severance agreement that can affect your compensation, benefits, legal rights, and future employment opportunities. Before signing, it is important to understand what the agreement requires, what rights you may be giving up, and which terms may be negotiable.
What Is a Severance Agreement?
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.
Because severance agreements can vary considerably, it is important to carefully review the compensation being offered, any restrictions that may affect future employment, and the legal rights or claims you may be asked to release.
Can You Negotiate a Severance Agreement?
A severance offer does not necessarily mean the proposed terms are final. Depending on the circumstances, an employee may be able to negotiate severance pay, continued benefits, restrictive provisions, or other terms before signing the agreement.
Several terms in a severance agreement may be negotiable. Depending on the circumstances, an employee may seek additional severance pay, negotiate the duration of continued benefits such as health insurance, or request changes to provisions that could affect future employment opportunities.
What Should You Consider When Negotiating Severance?
To negotiate effectively, consider these tips:
- Consult with an employment lawyer to understand your rights, the terms of the agreement, and what may be negotiable.
- Consider your tenure, position, compensation, performance history, and other circumstances that may be relevant to the negotiation.
- Take time to understand the agreement and the consequences of accepting or rejecting the proposed terms before making a decision.
What Rights Should You Consider Before Signing a Severance Agreement?
A severance agreement may require an employee to release significant legal claims, so it is important to carefully review the agreement before signing. Employees should understand the claims they are being asked to release, the compensation or benefits they will receive in return, and any continuing obligations imposed by the agreement.
Release of Claims
Many severance agreements require employees to release certain legal claims against their employer in exchange for severance compensation or other benefits. Before signing, it is important to understand which claims are covered by the release and whether there are potential employment-related claims that should be evaluated.
Another provision to review carefully is a non-compete clause, which could restrict future employment opportunities. If a severance agreement includes a non-compete or another restriction on future employment, it is important to understand how the provision may affect your ability to work after leaving the company and whether it is enforceable under applicable law.
Severance agreements may also include confidentiality, non-disclosure, or non-disparagement provisions. These provisions should be reviewed carefully because certain restrictions may be limited by federal or state law or may interfere with legally protected employee rights.
Should You Have a Lawyer Review a Severance Agreement?
A severance agreement can affect more than the amount of severance pay an employee receives. It may include a release of legal claims, confidentiality requirements, restrictions affecting future employment, and other continuing obligations. An employment lawyer can review the proposed agreement, explain its terms, identify provisions that deserve closer attention, and determine whether there may be opportunities to negotiate before it is signed.