4 Hidden Pitfalls in a Severance Agreement
Picture this: you have been called into Human Resources. They sit you down. They terminate your employment. You are worried about finding another job, losing insurance benefits, and keeping up with your bills. This is not the greatest day of your life! Then they put a magical document with the title “Severance Agreement” in front of you. Perfect! They are offering you some money, plus they will continue your medical insurance for a few months! Where’s the pen? Problem solved, right?
Maybe. Maybe not.
Depending on the circumstances surrounding your termination, you might be giving up an awful lot. Here are four things to look out for:
1) Release – do you have to release your employer regarding any future legal claims?
You may not want to give up the right to bring a legal action against your employer if your termination was for an impermissible reason, for example if you were terminated after reporting illegal working conditions or practices, taking leave under the Family and Medical Leave Act (FMLA), or complaining about illegal discrimination on the basis of race, gender, national origin, or some other prohibited basis.
2) Non-compete – does the agreement make it more difficult for you to find another job?
If you had an employment contract, it may contain non-compete language designed to prevent you from working, or soliciting employees or customers, in a specific area for a specific amount of time. While these provisions may be legal, they must be reasonable in terms of time and scope, and a sneaky employer might make it more difficult for you to find work through language inserted into the severance agreement.
3) Time – are they forcing you to make up your mind on the spot?
Under the federal Age Discrimination in Employment Act (ADEA), you are entitled to 21 days to consider the severance agreement before signing, and must give you the opportunity to talk to an attorney. And then you are entitled to another seven days after signing to revoke if you change your mind.
4) References – what will they say about you when a new employer calls for a reference check?
Severance agreements usually have language which prohibits you from disparaging your former employer. But do you get that benefit too? Probably not. Before signing a severance agreement, make sure it addresses how they will address future reference calls about you.
If you have any questions about whether signing a severance agreement is in your best interests, please contact us at any time.
Joseph E. Fournier is an Attorney and a CPA who has more than twenty years of experience in a variety of business legal matters, including start-ups and company formations, drafting shareholder and operating agreements, contracts, employment law, commercial litigation, tax planning and audit defense, and mergers and acquisitions (M&A). He also handles estate planning matters, such as business succession planning, wills, trusts, and probate.