Receiving a severance agreement can raise a lot of questions: How much severance is being offered? What happens to your benefits? Are you giving up potential legal claims? Can you negotiate the terms?
A severance agreement is more than paperwork documenting the end of an employment relationship. It is a contract that typically provides compensation or other benefits in exchange for certain commitments from the employee, which may include a release of legal claims.
Before signing, it is important to understand both sides of that exchange.
Look Beyond the Severance Number
The amount of severance is important, but it is only one part of the agreement. Employees should determine exactly what they are receiving and distinguish additional severance consideration from compensation or benefits they may already be entitled to receive.
Depending on the circumstances, this may include:
- Severance pay
- Earned wages
- Commissions
- Bonuses or incentive compensation
- Accrued PTO, where applicable
- Equity or stock-related benefits
- COBRA or other benefit contributions
- Expense reimbursements
The agreement should also explain when payments will be made, whether they will be paid as a lump sum or installments, and what conditions must be satisfied before payment is issued.
Understand What You Are Releasing
One of the most important provisions in a severance agreement is the release of claims.
A release may cover potential claims relating to compensation, discrimination, retaliation, harassment, leave, disability accommodations, contracts, or other aspects of the employment relationship.
Before signing, an employee should understand the scope of the release and consider whether there are unresolved workplace issues that should be evaluated.
Receiving a severance agreement does not, by itself, mean that an employer has done anything unlawful. Likewise, the fact that an employer is offering severance does not necessarily mean that an employee should sign the agreement without examining the circumstances surrounding the separation.
Pay Attention to Age-Discrimination Waivers
Employees age 40 and older should pay particular attention to agreements containing a waiver of claims under the Age Discrimination in Employment Act (ADEA).
Federal law imposes specific requirements on certain waivers of age-discrimination claims, including requirements concerning the language of the agreement, consideration provided to the employee, advice to consult an attorney, and applicable consideration and revocation periods.
Additional requirements may apply when a waiver is offered in connection with certain group termination or exit incentive programs.
Review Confidentiality & Non-Disparagement Provisions
Severance agreements frequently address confidentiality and non-disparagement.
Employees should understand exactly what information is covered, what communications remain permitted, and whether the agreement contains exceptions for communications with attorneys, tax professionals, government agencies, or others.
The wording matters. Restrictions that appear routine can have significant practical consequences after employment ends.
Consider References & Rehire Eligibility
What happens after the separation can be just as important as the severance payment itself.
Consider whether the agreement addresses:
- Employment references
- Who may respond to reference inquiries
- What information the employer will provide
- Rehire eligibility
- Communications concerning the employee's departure
These provisions can be particularly important for executives and professionals whose future opportunities may depend heavily on reputation and references.
Review Existing Restrictive Covenants
Employees should also determine whether they are subject to existing noncompetition, nonsolicitation, confidentiality, or other post-employment restrictions.
A severance agreement may reaffirm, modify, or add to those obligations. Understanding how those provisions affect future employment opportunities should be part of the review process.
Can a Severance Agreement Be Negotiated?
Sometimes. Whether an employer is willing to negotiate depends on the circumstances, but potential negotiation points may include:
- Severance compensation
- Benefit continuation
- Treatment of bonuses or commissions
- References
- Non-disparagement language
- Restrictive covenants
- Equity provisions
- Payment timing
- Other post-employment obligations
The strength of any negotiation position depends on the particular facts, the applicable agreements and policies, and the circumstances surrounding the separation.
What Should You Gather Before a Legal Review?
A lawyer reviewing a severance agreement may need more than the agreement itself.
Useful documents can include:
- Offer letter or employment agreement
- Compensation and commission plans
- Equity documents
- Relevant workplace policies and handbooks
- Performance evaluations
- Termination communications
- Documents relating to any workplace concerns or complaints
A short chronology of significant events can also help put the agreement in context.
Understand the Agreement Before You Sign
Severance agreements can affect compensation, benefits, future employment, confidentiality obligations, and potential legal claims.
At Cadogan Law, we represent employees, executives, professionals, and employers in employment matters throughout Florida. Because our attorneys work with both sides of the employment relationship, we understand the legal and practical considerations that can arise when employment ends.
If you have received a severance or separation agreement, we can review the agreement, explain its terms, identify potential issues, and advise you regarding your options before you sign. Call us today at (954) 371-1607.
