Red flags in severance agreements 

James Radford

Severance agreements can be a helpful tool for transitioning through a job loss. They extend some temporary stability during a time of upheaval by offering benefits like pay, insurance coverage and even continued access to company perks.   

But businesses don’t trade away money and benefits without asking for something in return. Severance pay isn’t required by federal law, and Georgia is an at-will employment state, so companies are free to fire employees at any time, for any reason—so long as it’s not because of a protected characteristic, like race, religion, color, sex, national origin, age, genetic information and disability.   

Still, many companies choose to offer severance packages. Doing so helps limit damage to their intangible assets, like public goodwill, and their reputation as a great place to work. It’s not all about marketing and recruiting, though. Severance agreements typically include a release or waiver of liability for claims. Essentially, in exchange for the severance payment, an employee agrees to forgo the right to pursue any legal claims against the company.   

The severance agreement is often presented to an employee at an emotionally vulnerable point—the time of termination. It is no surprise that employers might sometimes abuse the process. While a severance agreement should work to everyone’s benefit, there are some red flags departing employees should watch for:  

You’re pressured to sign 

You are in no way required to sign a severance agreement or release of claims.  

After a layoff, it’s easy to feel overwhelmed by all of the emotions that come with being let go—the surprise, disappointment, fear, self-doubt or even anger. It can be hard to carry out a conversation during a termination meeting, let alone review and sign a document.   

Companies should never pressure employees to sign severance agreements on the spot, or imply that they have to. Workers who are 40 or older have clearly defined protections in this respect. The Older Workers Benefit Protection Act (OWBPA) gives them 21 days to consider the agreement and a further 7 days after signing to change their minds. If the layoff is part of a larger downsizing, they have 45 days to review the agreement. Even if you’re under 40, many companies extend the OWBPA decision period to all employees—it’s always OK to ask HR how long you have.   

The agreement contains restrictive covenants  

Restrictive covenants, including non-competition clauses, confidentiality clauses, non-disparagement clauses, cooperation clauses or non-solicitation clauses, can seriously limit your career prospects, making the immediate gains—short-term severance pay—not always worth the sacrifices.   

While such covenants are becoming more and more common, you’ll want to carefully review the language before signing. If they bar you from working in your field for a period of time, your severance compensation should absolutely support you during that required career pause. But also ask yourself if that is what you want. Maybe you know you have strong contacts at another company and you’re ready to make moves towards a new job there. Or you’ve been considering starting your own business for years and don’t want to feel held back.   

Leaving money behind may be challenging during the uncertainty of a layoff, but, in some cases, it’s more advantageous to walk away without limiting your future flexibility and independence.   

You’ll be held responsible for damages   

If you’ve spotted restrictive covenants in your severance agreement, you’ll also want to look out for liquidated damages clauses, which set a fixed compensation amount for contract breaches. Typically, a business has to prove it was harmed by a breach of contract. If, for example, a company wanted to argue an employee’s violation of its confidentiality clause hurt them in some way, they’d have to demonstrate how. But with a liquidated damages clause, they can collect a lump sum from the former employee if a contract violation occurred.   

Liquidated damages clauses also pop up sometimes in employment contracts, even dictating the terms of your eventual exit. If you’re working with an employment attorney on a severance review, it’s often smart to return for an employment contract review down the road.  

You’re asked to give up rights 

A waiver of liability for claims is expected in any severance agreement. A company offers the goods—pay, insurance and other benefits—in exchange for the agreement not to sue. This in itself requires consideration if you believe the terms of your dismissal were unfair. Discrimination suits can be challenging, and it takes an employment attorney to give you a realistic assessment of your prospects.  

But while it’s fair for a company to ask you to sign a release of claims (so long as they’re offering you something in return and not pressuring you to agree), there are limits. A company should not:  

  • Ask you to release rights you cannot waive in the first place, like your cooperation with an Equal Employment Opportunity Commission (EEOC) investigation  
  • Ask you to waive future claims—claims that may happen after you sign the document   
  • Ask you to give up things you’re entitled to under federal or state law, like COBRA insurance coverage, unemployment compensation or workers’ comp pay  

You’ll need to “stay available for questions” 

If you’re asked to work for a period of time before your official end date begins, or if you’re asked to help with training, answer questions or otherwise keep the ship running after you’re no longer employed, that’s an issue. If your severance contract hints at situations that don’t quite sound like an actual split, you’ll want to speak to an employment attorney to clarify what’s being asked of you and what payment you should expect in return.   

You get a lowball pay offer 

Employers typically offer one to two weeks of pay per year worked. Managers and executives typically get more. If you’re offered less than two weeks per year, or if your company suggests a small lump sum, that’s a sign there could be other issues in the contract. Unfortunately, many employees don’t realize this, believing a severance offer is a one-way negotiation. Your time with the company, your performance reviews and documentation of your ideas and contributions all increase your leverage.   

You should also have an exact understanding of how and in what increments your former employer will make severance payments.   

If you have earned benefits, like vested commissions or, in some cases, unused PTO, be sure this isn’t lumped in with your payments. The company cannot use compensation you have a right to as consideration for releasing employment claims.  

Schedule a severance agreement review with Radford Scott   

Severance agreements should help you move on in your career—not hold you back. If you’ve been affected by a layoff, contact an employment lawyer to set up a severance package review. We’ll offer you legal advice, helping you avoid pitfalls and negotiate for what’s fair. And when you’re ready for your next position, we can take a look at your employee contract to ensure you’ll be off to a good start. Contact us today to set up your severance review.   


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