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Severance Agreements: 7 Questions Answered

by | Jul 1, 2023 | Employment Law |

Terminated from your job? You may be asked to sign a severance agreement. This page provides insight into what severance agreements are, when you should (and shouldn’t) sign them, and what to do if your employer fails to uphold their end of the agreement after a severance agreement is signed.

What is a severance agreement? 

A severance agreement is a contract between an employee and an employer. In short, the employer offers the employee a deal when the employee is terminated from their position at the company. In most severance contracts, the employee receives a fixed amount of monetary compensation. In exchange for this monetary compensation, the employee agrees to release all claims against the employer—in other words, the employee gives up their option to pursue legal action against the employer.   

How do you qualify for severance pay? 

The only way to truly “qualify” for severance pay is by signing a contract regarding severance pay before taking a position at a company. For example, many union contracts will have standardized legalese regarding severance pay. Company employment contracts may also mention severance pay. If severance pay is in your official contract, your employer must uphold the terms stated in the agreement.  Otherwise, there is no legal obligation for an employer to pay severance to a departing employee. 

When should I sign a severance agreement? 

Rarely, severance agreements come with no obvious stipulations. For example, some companies may just want to thank you for your past employment with them and set you off on the right foot. You will likely be offered severance pay, along with other aspects of your severance package, such as healthcare through COBRA or some other benefit. Even if you have had no issues with your employer, you should have an attorney review the severance agreement language to make sure that you are protected.   

When should I not sign a severance agreement? 

If you have issues with your employer that could result in legal action against them, it makes sense to carefully consider whether or not signing a severance agreement is in your best interests as the employee. For example, if you have a discrimination case against your employer, signing a severance agreement may result in you receiving less compensation than if you were to pursue your discrimination claim. 

Remember: When you sign a severance agreement, you legally give up your right to pursue legal action against your employer, which means you should never sign a severance agreement without reading it and fully considering your options first. 

How long do I have to sign a severance agreement? 

How long you have to sign a severance agreement depends on the terms stated in your contract specifically. In general, employers give employees 21 days to consider and sign or not sign the severance agreement; however, the timeline is defined by the agreement itself and certain statutory provisions. And usually, employers must give employees who are older than 40 seven days after signing to change their minds. Remember that these are just standard guidelines—review your severance agreement carefully to see how long you have. 

What should I do if my employer is not honoring a severance agreement? 

If no severance agreement was officially signed, the employee usually has no grounds to legally contest lack of severance payment.  However, there are certain circumstances where a court may require the employer to honor the terms of the agreement. 

What should I do if I have any other questions about severance agreements? 

Because severance agreements sometimes deal with large amounts of money and various complicated issues, releases and waivers of your claims, it always makes sense to consult a legal professional, such as a severance agreement lawyer, if you have any questions before signing your severance agreement, especially if you are leaving the company with the potential to pursue legal claims against your employer. 

Although you can ask your employer for clarification on specific wording in the contract, the best insight will come from an unbiased third party. This third party may also be able to help you with severance agreement negotiations to receive more compensation from your employer than they originally offered.

The expert employment lawyers at Hamilton Law Firm are here to help answer any other questions you may have about your severance agreements, provide legal assistance negotiating these contracts, and get you your deserved compensation. Reach out today for a consultation.