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Before You Sign a Severance Agreement

What You Need to Know Before Signing A Severance Agreement

I review, draft and negotiate severance agreements and assist employees who have been laid off or fired. Many employees will face this situation sometime during their working career. Good employment practices provide employees with notice that they aren’t meeting the employer’s expectations. The employee is given a performance improvement plan or progressive discipline and time to correct their behavior. In situations where the Company is downsizing, the employer should also provide the employees notice that they will have their position eliminated. However, there are a lot of employers who don’t always treat employees fairly . If you work for an employer that is treating you poorly and you anticipate that you are going to be terminated, or if you have been let go and not given legitimate reasons for your termination, you should seek counsel with an employment attorney to see if you can negotiate a severance agreement.

It is important to discuss your termination with an experienced employment attorney to know whether you have a case or some leverage for negotiating a severance agreement. If a severance agreement is offered to you, you should know what you are signing and whether there are provisions that should be modified, changed or deleted.

When you receive a severance package, you will be required to sign an agreement.  It’s crucial to thoroughly review this agreement before signing it. An employer will be asking you to forfeit your right to bring a legal claim against them and may be asking for additional promises such as you not working for a competitor in the industry, soliciting their customers or recruiting their employees.

Employers may offer terminated employees a severance agreement (sometime also called a Separation Agreement) to ensure the employee does not sue their former employer, disparage them publicly, and in some circumstances, compete against the employer with a new employer or by forming a competing business. Employees may benefit from signing a severance agreement because they will receive things from the employer they would not otherwise receive, usually in the form of compensation.

Some common provisions that can be negotiated on behalf of the employee in a severance agreement include:

  1. Severance payments
  2. Partial or full employer contribution toward COBRA health insurance premiums
  3. Outplacement services paid by the employer
  4. A substantive letter of reference
  5. A pro-rated bonus payment

An employer must pay the employee for wages earned, accrued but unused vacation time (if they have a policy providing for such), and customary expenses incurred prior to the separation (again subject to their policy), even if the employee does not sign a separation agreement.

Employers typically want some provisions protecting their interests, including:

  1. Agreement that the employee will not bring any legal claim against the employer.
  2. A prohibition on the disclosure of the employer’s trade secrets, confidential and proprietary information, or the existence or terms of the severance agreement itself.
  3. A non-disparagement clause to prevent the employee from complaining publicly about either their employment or the circumstances of their departure.
  4. If the employee previously signed a noncompetition agreement, the severance agreement will usually reaffirm those terms. Some employers will attempt to include noncompetition terms in a severance agreement even if the employee did not previously sign a noncompetition agreement.

No Minnesota or federal law establishes any schedule for what amount of severance should be paid. Everything in a severance agreement is negotiable. That doesn’t mean your employer will negotiate with you or an attorney, but it is essential to have an experienced employment attorney assist you in your negotiations.

You will need to evaluate the pros (financial incentives, need for immediate cash flow) and the cons (strength of legal claim, opportunity to work for a competitor). Were you discriminated against by your former employer? If you avoided signing a release of claims because you had serious legal complaints against your employer, then you should consider protecting your legal rights by talking with an experienced employment lawyer. A skilled employment law attorney can determine if you have grounds for legal action and what steps to take against your former employer.

Protect your rights. Know what you’re signing before taking a severance package! If you have questions about severance agreements, please contact employment lawyer John C. Holden at Holden Law Firm. Call 952-836-2640 or email us at John@holdenlawfirm.com.

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