If you have received a severance agreement from your employer, it will be important to ensure that you make an informed decision about whether to sign. It may be in your best interests to negotiate some of the terms of your severance agreement as well. When drafting severance agreements, employers generally put their own best interests first, and while your severance agreement might seem fair on its face, there are some important legal, financial, and practical issues that you may need to consider.
Important Provisions in an Employment Severance Agreement
For example, here are 10 important provisions that you will want to consider carefully (and potentially negotiate) before you sign your severance agreement:
1. Reason for Termination
Generally speaking, employees will want to ensure that their severance agreement states a neutral reason for their termination. This is important for a couple of reasons. Not only could agreeing that you are being terminated “for cause” impair your future employment prospects, but it could potentially render you ineligible for unemployment benefits as well.
2. Severance Pay
Your severance agreement should clearly and unambiguously state the pay that you will receive upon the termination of your employment. This includes not only the amount of your severance pay, but also the timing and method of payment (i.e., whether you will receive bi-weekly checks or a lump sum). Collecting a lump sum will often be in employees’ best interests—as this avoids the risk of non-payment in the future—but there may be income tax and other considerations involved as well.
3. Post-Termination Benefits
Your severance agreement should also clearly and unambiguously state the benefits that you will be entitled to receive once you sign. These may include a payout for your accrued paid time off (PTO) and continuation of your health insurance coverage, among others. Keep in mind that while your employer might agree to continue covering a portion of the cost of your health insurance, you could also be responsible for your employer’s share of the cost (plus an administrative fee) under COBRA.
4. Termination Date
You will also want to make sure your severance agreement specifies the termination date of your employment. This is also important for a couple of reasons. First, you will want to make sure you know how long you have to continue working in order to receive your severance pay and benefits (unless you have been placed on paid leave pending your termination date). Second, if you are subject to any non-competition or non-solicitation obligations—as discussed below—you will need to make sure you know when these obligations expire.
5. Waiver/Release of Claims
One of the main reasons why employers offer severance agreements (and severance pay) to their employees is to insulate themselves from future liability. If you sign your severance agreement, you will almost certainly be giving up your right to pursue any discrimination, harassment or other employment-related claims against your employer. If you have a claim against your employer, your claim could be worth far more than your severance package—and it could be in your best interests to reject your employer’s offer or perhaps negotiate for a larger settlement.
6. Non-Competition
Severance agreements routinely include non-competition clauses as well. These clauses restrict employees (or former employees) from working for competitors or starting a competing business of their own. While non-compete clauses are generally enforceable in New York, there are limits. If your employer is overreaching, or if you need to make clear that a particular position or business venture will not be considered “competing,” this is something that may warrant negotiation as well.
7. Non-Solicitation
Along with non-competition clauses, many employers also include non-solicitation clauses in their severance agreements. These clauses prevent their employees (or former employees) from contacting their customers post-termination. Here, too, there are limits—although non-solicitation clauses generally do not have to be restricted to prohibiting solicitation for competing businesses. At a minimum, you will want to make sure you know what you aren’t allowed to do once your employment ends. However, this may also be a clause that you want to negotiate to protect yourself long-term.
8. Confidentiality and Non-Disparagement
Severance agreements also routinely include confidentiality clauses—and many of these clauses contain provisions that specifically prohibit former employees from making disparaging comments about their former employers. Once again, you will need to make sure you have a clear understanding of your post-termination obligations, and if the confidentiality clause in your severance agreement is overly restrictive or is so broad that it will be practically impossible for you to comply, modifications may be necessary.
9. Neutral Reference
In many cases, employees will want to add a neutral reference clause to their severance agreements. These are clauses that employers often don’t add on their own, but they can be important for protecting employees’ employment prospects going forward. A well-drafted neutral reference clause will state that if a prospective employer asks for a reference, your former employer will be prohibited from making any negative statements—and will only be allowed to provide basic factual information about your employment. Alternatively, you might consider requesting a letter of reference that you can submit directly to prospective employers in the future.
10. Dispute Resolution
Finally, severance agreements will typically include various dispute resolution provisions, including provisions that require the use of arbitration to resolve any disputes that may arise. While employees often overlook these as “boilerplate” terms, they can have important implications, and it is important to ensure that you have a clear understanding of all of the terms to which you are agreeing.
Schedule a Call with a New York Employment Lawyer at Bell Law Group
Have you received a severance agreement from your employer? If so, we can help you understand its key terms and make informed decisions about your next steps. To schedule a call with a New York employment lawyer at Bell Law Group, please call 516-280-3008 or request an appointment online today.
