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When Not to Sign a Severance Agreement

by | Feb 23, 2024 | Employment Law |

If you have been terminated from your company due to layoffs or possible discrimination, you may have received a severance package. While obtaining a financial cushion may sound appealing, remember that a severance agreement is a legal contract. As with any contract, it must be carefully reviewed to ensure that it serves your best interests. 

As employee lawyers, we often see cases in which employees unintentionally give up significant rights by consenting to unreasonable terms in a severance agreement. Severance agreements can offer financial security during transitions, but they may also contain clauses detrimental to your career trajectory. 

This article goes over some of the biggest red flags to look for in a severance agreement, as well as scenarios where signing one may not make sense for an employee.

Red Flags in the Severance Agreement

Several red flags may indicate that a severance agreement is not in your best interests. Here are a few to watch out for:

Non-Competes and Restrictive Clauses

One of the biggest things to be wary of in a severance agreement is restrictive covenants such as non-compete clauses. 

Non-compete clauses may have rigid restrictions that prohibit you from working for a competitor or launching a similar business. These constraints may prevent you from working in your career field for a lengthy period, causing financial problems or career derailment, which can be detrimental to your profession. It’s essential to thoroughly evaluate these clauses and consider their potential long-term impact before agreeing to them.

Unclear and Unambiguous Language

If the language in the agreement is confusing, it may result in misunderstandings or unintended breaches of contract. If you accidentally break such a contract, your previous employer will find a way to sue you, leaving you struggling with a legal battle you did not see coming. Therefore, it is critical to obtain clarification on any terms or restrictions that seem ambiguous.

Unreasonable Confidentiality Provisions

While confidentiality clauses are typical in severance agreements, they should not limit your rights to disclose conditions of your employment or circumstances surrounding your termination, particularly if there are allegations of misbehavior or discrimination.

Limited Release of Claims

The release of claims portion of a severance agreement often requires you to forgo your right to sue the employer in exchange for obtaining severance money. However, if the release is too broad, you may give up key legal rights without fully comprehending the consequences.

Pressure to Sign Quickly

If you are pressed to sign the agreement without having enough time to understand and consider its provisions, it may suggest that the employer is attempting to take advantage of you. Before making a choice, thoroughly analyze the agreement and, if required, get legal advice.  If you are over the age of 40, your employer is required to give you at least 21 days to consider your options and after you sign the agreement, you have a 7-day right to revoke your signature.

Insufficient Severance Pay

The amount of severance compensation granted should be fair and reasonable based on your years of employment, level of responsibility, and the circumstances surrounding your termination. If the severance money is insufficient, you can negotiate a better deal. 

Should I Sign a Severance Agreement?

While severance agreements can offer financial security, signing one shouldn’t feel like selling your soul. Remember that it’s not mandatory – you have the right to negotiate the terms or decline the offer entirely.

When presented with a severance package, it is important to seek advice from an employment lawyer. The Employment lawyers at Hamilton Law Firm PC understand New Jersey law as it relates to state severance agreement regulations and can ensure you do not lose your opportunity to seek reparation. 

Seek legal counsel from an employment lawyer who can help you understand the agreement’s implications and assess its fairness. Don’t be afraid to walk away if the terms are unfavorable – do not feel pressured to sign just because it’s presented as the only option. 

Signing a severance agreement may not make financial or legal sense in some scenarios.  

If a severance agreement provides no additional pay or benefits beyond what you are already owed, such as unpaid wages, there is no reason to release legal claims. 

If you were terminated in violation of laws safeguarding your rights, such as the NJ Law Against Discrimination, the Conscientious Employee Protection Act, or various federal laws like the Americans With Disabilities Act or FMLA or anti-discrimination regulations, signing a release of claims may waive a potential lawsuit. Therefore, it is preferable not to sign until you have spoken with a lawyer. 

Ultimately, a decision to sign a severance agreement should be based on knowledge, not desperation. By understanding the potential pitfalls and your legal options, you can make an informed choice that protects your future career and financial well-being. Consulting with an experienced employment lawyer at Hamilton Law Firm is advisable before agreeing to release claims. Contact us to schedule a consultation.