Understanding Severance Agreements: 9 Tips from An Employment Lawyer
Navigating the complexities of severance agreements can be a daunting task for employees facing job transitions. This comprehensive guide offers valuable insights from employment law experts on understanding and protecting your rights during the severance process. From key clauses to equity considerations, discover how professional legal guidance can empower you to negotiate fair terms and exit with integrity.
- Understand Severance Terms Before Signing
- Protect Rights in Severance Agreements
- Lawyer Guidance Crucial for Severance Contracts
- Equity Considerations in Severance Packages
- Craft Fair Layoff Deals for Both Parties
- Key Clauses in Employment Severance Agreements
- Severance Agreements Impact Divorce Proceedings
- Expert Advice Empowers Severance Negotiations
- Exit with Integrity Through Legal Guidance
Understand Severance Terms Before Signing
A severance package can appear to be an easy escape from a job, but it can have lasting effects on your career and legal rights. As an attorney, I have personally witnessed how crucial it is to understand what you're signing before you do so. To illustrate, in a recent case, one of my clients was offered a severance package but did not read the non-compete agreement within it. The provision could have prevented them from practicing their preferred vocation for several months. Without attorney review, they would have lost the right to earn a living in their occupation.
Look for key provisions such as non-disclosure and non-compete clauses, which can limit future employment opportunities. Severance pay itself is also crucial, as some companies pay in a lump sum while others pay in installments depending on certain conditions. Most critically, some packages contain waivers of rights, where you unknowingly forfeit your right to sue the company for wrongful termination or other complaints.
Ensure that you fully understand what you're signing. A severance package may seem like an attractive way out, but it can potentially trap you in unfavorable terms that limit your freedom and choices. Always have your employment lawyer review the document to protect your rights and determine whether you're making the right decision for your future.
Protect Rights in Severance Agreements
An employment lawyer once assisted one of our clients in reviewing a severance agreement offered during a workforce downsizing. The initial draft contained a broad non-compete clause and a general release of claims that would have waived the employee's right to pursue a pending discrimination complaint. The lawyer helped the client understand that signing the agreement in its original form could limit future legal options and affect reemployment.
Key provisions to always look out for in a severance agreement include the scope of the release of claims, confidentiality and non-disparagement clauses, non-compete or non-solicitation terms, and the timeline for severance payments. Understanding these ensures that the employee's rights and future opportunities remain protected.
Lawyer Guidance Crucial for Severance Contracts
I've seen numerous severance contracts throughout my career. Most of them have short deadlines and exert high pressure to sign. In each case, the agreement was drafted with the employer's interests in mind. The typical language includes sweeping releases of legal rights, non-disparagement provisions, and limitations on future employment. These are not peripheral matters; they are the core of what you're signing. Without the protection of a lawyer, you may be signing away valuable rights for significantly less compensation than you should receive.
The major provisions to focus on remain consistent. First, examine the release of claims. It typically contains language preventing any action, even for infractions you have not yet discovered. Non-disparagement clauses may prevent you from commenting truthfully about your experience. Non-compete and non-solicitation clauses may restrict your ability to earn a living. Also, pay attention to health benefits, unpaid commissions or bonuses, and how the company defines your last date of employment.
Every word in that contract serves a purpose. It is not there for your benefit. Employers create these documents to minimize their risk. You must approach it with the same mindset. An employment law attorney will quickly identify problems and provide you with alternatives to push back or renegotiate. Once you sign, your leverage disappears. Legal counsel is not a luxury in this situation; it is essential.
Equity Considerations in Severance Packages
I once helped a person retire from a technology company. Everything in the document seemed fair until I noticed that his vested stock options were missing. Since there was no mention of them in the agreement, the company's policy took effect, and he lost over $80,000 in his stake. This example stayed with me, as it demonstrated how forgetting just one clause could cost a person many years of their efforts.
Therefore, I usually encourage clients to understand the effect of losing their job on their equity. This would also cover stock options, restricted shares, and performance rights. Since people are rarely informed about timing, transfer, and exercise conditions, they usually find out about the risk after it occurs.
Under the Fair Work Act in Australia, employers are not required to provide equal treatment in termination unless this is stated in an agreement. Therefore, you should express everything clearly, especially when you're applying for top jobs. Too many individuals have thought they were secure but later discovered their shares were gone.
Craft Fair Layoff Deals for Both Parties
When one of our employees quit, I hired an employment lawyer to help me write a fair layoff deal for both parties. They pointed out a non-compete rule that was too broad. It might not have been binding, which would have left us open to being sued. We changed it to narrow the area and time frame, which made it legal.
Key rules to watch are the promise of "privacy," "not disparaging," "release of claims," and any "continued benefits." Also, make sure the terms of payment are obvious. That consultation kept us from fighting and gave us a model we've used ever since. If you don't handle severance terms well, they can come back to haunt you. Don't just sign or use generic templates.
Key Clauses in Employment Severance Agreements
I've drafted various employment agreements and worked with clients on severance negotiations. Some important considerations beyond payment terms and release of claims are non-disparagement, confidentiality, and what the employer will share with future potential employers. Confidentiality and non-disparagement clauses are serious concerns for the employee because violations result in reimbursement of the severance payment. These terms are often broad and can be triggered by friends or family of the employee posting on social media about the employer.
The employee will also want to limit what will be shared with potential employers calling for a reference. Employers have different policies regarding whether they will disclose reasons for termination at all, upon specific request, etc. An employee negotiating severance should, at a minimum, restrict the employer to disclosing only that the employee was terminated, not permitting any further details.
Severance Agreements Impact Divorce Proceedings
In family law, we often deal with issues that overlap with other legal disciplines, and one area where I've found collaboration especially valuable is in reviewing severance agreements. For example, a woman going through a divorce whose spouse has signed a severance package would understandably be concerned about how the severance agreement might affect her community property rights or reduce the assets available for division.
To ensure we fully understand the implications in such circumstances, we bring in an employment lawyer to review the agreement. They can help us identify whether the severance payment is compensation for past services (earned during the marriage) or future consideration (post-separation compensation), which can dramatically affect whether the severance is treated as community or separate property.
The employment lawyer can also flag non-compete clauses, release of claims, and timing of payments, all of which could have downstream impacts on our property division strategy and even potential spousal support calculations. For example, if the severance is paid in a lump sum but intended to cover a year's worth of post-employment compensation, we look closely at the agreement language and payment schedule to determine what portion might still be considered marital.
Some key provisions to watch for in severance agreements include:
- Character of the severance (past vs. future compensation)
- Non-compete or garden leave provisions that limit earning potential
- Tax treatment and timing of payments
- Confidentiality and release of claims that may affect pending legal matters
- Retention or forfeiture of stock options, bonuses, or other deferred compensation
My experience with situations like this reinforces the importance of a multidisciplinary approach, especially in high-asset or complex divorces. A severance agreement isn't just an HR document—it can significantly alter the financial landscape of a divorce. Partnering with an employment attorney allows us to protect our client's interests and ensure nothing slips through the cracks.
Expert Advice Empowers Severance Negotiations
When I faced a severance agreement, my employment lawyer was invaluable in helping me understand its full implications. They carefully explained provisions I might have overlooked, such as non-compete clauses, confidentiality requirements, and the scope of release of claims. One key provision we focused on was the timeframe for accepting the agreement—I hadn't realized how important that deadline was for negotiating terms. The lawyer also helped me understand the financial components, ensuring that severance pay, benefits continuation, and any bonuses were clearly outlined. This guidance gave me confidence to negotiate aspects that were initially unfavorable. From this experience, I learned that having expert advice is crucial because severance agreements often include complex legal language and hidden obligations. My advice is to review these documents with a lawyer to protect your rights and fully understand what you're agreeing to.
Exit with Integrity Through Legal Guidance
When we had to part ways with a team member a couple of years ago, we brought in an employment lawyer to review the severance agreement — not just to protect the business, but to ensure the process was fair, clear, and legally sound for everyone involved.
The lawyer walked us through key implications we hadn't fully considered, such as how non-disparagement clauses can backfire if they're too one-sided, or how overly broad release of claims language could raise red flags during a future audit.
One thing they pointed out — and I now always look for — is the "waiver period and revocation window" under the Older Workers Benefit Protection Act (OWBPA). If the employee is over 40, they must have 21 days to consider the agreement and 7 days to revoke it afterward. We nearly missed that detail.
The biggest value wasn't the contract language itself — it was the clarity it gave us on how to exit with integrity. A good employment lawyer doesn't just protect you from risk — they help you part ways in a manner that's professional, respectful, and legally airtight.
