Should You Sign that Severance Agreement?

Your department head schedules a meeting in the conference room. When you arrive, she is sitting there with your HR representative, who has a pile of paper in front of him. She tells you that your position is being eliminated and today is your last day of employment.

As the shock sinks in, the HR rep starts explaining what happens next – turn over your keys, access card, phone – and hands half of that pile of paper to you. On top is a document that has “Severance” or “Separation” and “General Release” and “Agreement” in the title. Your department head sits there quietly, avoiding eye contact, while the HR rep explains that your final paycheck will be mailed to you, along with your vacation or PTO payout.

Then he mentions that Agreement again, the one with “Severance” or “Separation” and “General Release” in the title, under which you will receive a few weeks or months of severance pay. He explains, briefly, that the Agreement includes a general release of all claims you may have against the company, including all claims you may have under a panoply of acronyms – EEOC, EPA, OWBPA, ERISA, ADEA, ADA, USERRA, NLRA, WARN, FMLA, OSHA – not to mention Title VII of the Civil Rights Act (which bars discrimination based on race, color, religion, sex, and national origin), your State Constitution, and the United States Constitution. Basically, you would waive your right to sue for anything your employer or its employees had done to you over the course of your employment.

Depending on your position in the company, the Agreement may require a pledge that you will not compete with your employer or try to hire away any of your colleagues once you find new employment. The Agreement may require that you not discuss the Agreement with anyone outside your family, attorney, and tax advisor, and keep everything you learned during your employment confidential.

The Agreement may include generous remedies for your employer if you violate any part of the Agreement, such as getting a court order restraining you from the activity that may violate the Agreement. Your employer is also likely to be entitled to recover its attorney fees if it “wins” a lawsuit against you.

The HR rep may mention, as the Agreement surely does, that you may consult an attorney before you sign away your right to sue (but he doesn’t really mean it). He tells you that you have some time to consider the Agreement, and then you gather your personal effects and are escorted from the building.

You may be tempted just to sign the Agreement, take the money, and put the episode behind you. Please, resist the temptation and talk with your family, friends, and perhaps, an attorney, before you sign anything. You are being asked to give up significant rights, and there may be something in your relationship with your employer that merits additional compensation to you.

You need to evaluate your situation before you sign anything. The various acronyms and Title VII of the Civil Rights Act protect employees against many different types of discrimination from employers and their employees. For example, consider whether you have been harassed because of your race, gender, national origin, or age. Was your termination preceded by a complaint from you about harassment or some other form of discrimination? Or, are all of the older, more “seasoned” employees having their positions eliminated, only to be replaced in short order by younger, less experienced (and less expensive) workers? If so, you may be able to negotiate a different severance arrangement or you might consider foregoing the severance payments and not signing the broad release that only favors your employer.

Don’t assume you have no leverage to negotiate the severance package offered. Depending on your situation, the company may pay or subsidize your COBRA health care continuation contributions, or allow you take a paid “garden” leave to defer your formal termination date for a few weeks or months. This can be particularly important when the extra time as an employee may entitle you to an extra benefit like a bonus or a profit sharing contribution. Consider whether there are “no cost” items like your cell phone, laptop, or even a company car that you could request.

The company will certainly want a confidentiality provision under which you may not discuss the terms of your separation – you should ask for similar confidentiality from the company. Consider whether the company will agree to supply positive references for you, or at least, promise not to give negative comments to prospective employers.

An experienced business attorney can help you consider these issues and review the Agreement for legal issues. Beyond the financial side, you need to understand your obligations under the Agreement. You also need to consider whether you are receiving adequate compensation if you have truly been discriminated against. In some cases, the severance payments are simply not significant enough to sign your rights away.

This article is made available by Corporate Counsel Group LLP for educational purposes only and to give you general information. It is not legal advice.