A severance agreement, when properly executed, is a binding contract between employees and employers, created at the time an employee separates from that employer. In most cases, the employee is required to relinquish certain rights in exchange for money or other benefits. Here are the answers to some of the most common questions that clients ask about these specific types of agreements.
Are employers required to offer employees severance pay?
Not necessarily. A common misconception is that any employee who is let go from their employment is automatically entitled to some form of severance pay. In reality, there are limited situations where an employer is legally required to offer an employee severance pay. For example, if an employer promised to provide severance pay in an employment contract or if it is promised as a part of company policy, then the employee may have a legal claim for that pay.
How is the amount of severance pay determined?
Different employers consider different factors in determining the amount of severance pay to offer to separating employees. Some of those factors typically include:
- Whether there was an employment contract that specified an amount
- How long the employee worked at the company
- Whether the employee was an hourly or salaried employee
- Length of the employee’s service with the company
- The employee’s work history
- The circumstances surrounding the employee’s dismissal
If you believe the severance amount you are being offered is not appropriate, you can speak to an employment attorney to discuss your situation.
What are the consequences of signing a severance agreement?
The primary consequence of signing a severance agreement for employees is the forfeiture of certain rights. Specifically, most severance agreements include the following clauses:
- A non-compete agreement;
- An agreement not to attempt to solicit any of the employees or customers to a new firm;
- An agreement that the employee will keep certain information confidential.
It is important to understand that these types of clauses can restrict the employee’s future employment opportunities in some cases.
What should employees know before they sign a severance agreement?
Before signing a severance agreement, as well as any other employment contract, it is important to determine whether signing the agreement is actually in the employee’s best interest and whether the terms can be negotiated. Contrary to public opinion, severance agreements are not really “standard” or “boilerplate.” In reality, some agreements may be more burdensome than others.
Should an employee always accept the severance offered?
When offered severance pay, along with a severance agreement, many employees make the mistake of signing it without reading it or waiting until the deadline to make a decision. If you are presented with a severance agreement, the best advice is to take some time to consider the terms of the severance agreement before deciding to sign and accept it. It is not uncommon for severance agreements to be negotiated in order to ensure that the agreement is fair for both parties. It is possible for the agreement to eliminate certain rights that the employee already had as a result of another contract previously signed.
In some cases, after considering how the agreement will restrict future employment options, employees decide whether to negotiate the terms or simply leave their employment without the severance pay.
If you have questions about severance agreements, or if you have any other questions regarding your employment rights, please contact Wrady & Michel, LLC, either online or by calling us at (205) 265-1880.