SEVERANCE PAY / RELEASE AGREEMENTS

 

QUICK READ & BOTTOM LINE:  It's money well spent [maybe $100 to $500] to have an attorney review a severance and/or release agreement you are being asked to sign.  Note:  in the search for cases some lawyers review release agreements at no charge to you!
A lawyer needs to consider the issues I have listed on this page.  A lawyer needs to explain the significance of your signing a release.  A lawyer needs to explain your rights, duties and obligations under the agreement.  And only a lawyer can explain what claims you may have and what you are giving up should you sign the release.
Remember, the employer had a lawyer prepare the release/severance agreement; so you too should have a lawyer examine your history with the Company to determine what claims you may have and what you are giving up should you sign the agreement.  And best of all, the lawyer may be able to negotiate with the employer to obtain more severance pay for you!


 
E-mailed question:  "Daniel" wonders if he should be concerned about language his employer has included in a severance offer.  The clause causing Daniel's concern is a sentence that says if the employer offers to rehire Daniel and he refuses to go back the employer can cease making further severance payments. Our response, click here.
Daniel is suspicious.  He thinks the employer will disingenuously offer to rehire him with the ulterior motive to get out of making further severance payments.

Severance Pay / Release Agreements
Issues and Insights
1.  Many employees are not aware that California law does NOT require an employer to provide severance pay to a departing employee. (Note: if larger companies are going through mass layoffs, the federal WARN law acts as a "severance pay" of sorts for soon to be laid off employees.  This is in the form of advanced notice of termination or layoff. Some employers choose to have employees laid off immediately and to provide pay in lieu of issuing WARN notices and having the employees continue to work during the WARN notice period.)
2.  If an employer provides severance pay, pursuant to a written or oral policy, the policy or "program" is a contract between the employer and the employee.  Such understandings, contracts or agreements may be subject to federal or state regulation; otherwise, general contract law and principles apply in interpreting or enforcing severance pay programs or agreements.
3.  The trend in modern times is that most employers do NOT have set or guaranteed severance programs.  In other words, employers typically do NOT give employees a handbook or memo that says, for example, for each month worked you receive X amount of severance pay. 
4.  Typically, employers now offer a fired employee, on an individual basis, severance pay in return for the fired employee agreeing to sign a release of all claims, known or unknown, that the employee may have against the employer.  This is a fancy way of saying:  in accepting the money specified in the release agreement, you agree to never, ever sue the employer for anything.
5.  Release agreements are BINDING contracts and the Courts will enforce the terms. 
6.  Unless addressed in the release agreement, keep in mind that although the employee agrees to never pursue a case against the employer, the employer is NOT releasing any claims it might want to pursue against the former employee.  For example, if six months post-termination the employer discovers you stole Company property, it may pursue you through any means available [such as a lawsuit or by contacting law enforcement].  The employer can go after the ex-employee because he or she did not sign a mutual release.
7.  Because the release you signed was NOT a "mutual release," meaning both the employer and employee forgive each other on any claims or disputes, the employer had reserved the right to file any claims it may have, known or unknown at the time you sign the release and receive the severance pay.  THE MOST COMMON RELEASE SIGNED IS ONE WHERE THE EMPLOYEE RELEASES THE EMPLOYER, BUT THE EMPLOYER DOES NOT RELEASE THE EMPLOYEE!
8.  Severance and release agreements involve many issues of which most employees are not aware.   Realistically, the departing employee understands one thing, he or she needs the money being offered for a signature on a release agreement.  Most employees sign release agreements to get the money.   Most employees foolishly do NOT seek the advice and counsel of an attorney BEFORE signing a release agreement.
9.  In contrast, employers are keenly aware of the value in getting the employee to "sign off" on the release agreement.   An employer typically has an attorney  prepare or draft the agreement.  Usually the attorney is aware of what to include and leave out in the document, this so the document favors the employer.  Moreover, most company human resource personnel receive training on how to get employees to sign release agreements.  Part of the training includes techniques such as:     and
  A) Putting the employee at ease through the entire review and signing process;
  B) Being especially friendly on follow-up calls asking the whereabouts of the signed agreement;
  C) Waving under the employee's nose, so to speak, the check he or she will receive if the release is signed;
  D) Making it appear that signing the release is merely a paperwork formality so the check can be handed over to the employee;
  E) Giving the employee a stack of paper to review, with the Release buried into the pile, knowing that the more the employee has to read, the more likely the employee will not notice or read the terms of the release agreement;
  F) Not reviewing nor explaining with the employee the meaning of the release/severance agreement's terms and conditions.  Note:  there is no law requiring an employer to go over the agreement with the employee.  Pursuant to federal law for the release of certain claims only an opportunity to review the agreement is required for release of those claims. 

Severance or release agreement issues include*:
1.  The amount of severance money the employer will pay [warning: attorneys and clients tend to erroneously focus on this item only during negotiations]; 
2.  When and how the severance will be paid, lump sum or payments? [warning: bonehead attorneys often drop the ball in making sure language does not cause delay of payments to be received, meaning check in hand];
3.  Taxes on severance received.  For example, maybe a large payment can be made in the following year that will delay having to pay taxes. [warning: incompetent attorneys fail to address tax issues including characterization of sums received, indemnification, and assuring minimum tax liability to the client];
4.  Confidentiality obligations; what I call a "bad mouthing" clause [warning: bonehead attorneys sometimes put the client into a worse situation by agreeing to inclusion of draconian nondisparagement clauses];
5.  Penalties, damages or remedies for breach of the release agreement;
6.  References and recommendation letters to be provided.  To whom will reference check callers or prospective employers be routed?  What information will be provided to prospective employers, for example, "your leaving the company was a voluntary resignation" [even though you were fired.]  Will the prospective employer be told you are eligible for rehire?  Will, God forbid, prospective employers be referred to "our legal department?"  Don't laugh, that has happened.  And what do you think the odds of getting a job are when on a reference call the prospective employer is referred to the ex-employer's lawyers?
7.  Employee retaining possession or having to return specified company property [e.g. a notebook computer; a BlackBerry phone.]  Some employers let departing employees keep a notebook computer as it helps ex-employees with a transition and in a job search.  Other employers demand return of all company property, down to the paper clips;
8.  Noncompetition; nonsolicitation provisions; reaffirmation of prior agreements you signed;
9.  Validity of the release of certain claims, see below;
10. "Undoing" the agreement after you have signed and received money;
11. If you already signed a release, what were the circumstances under which you signed the agreement;
12. The legality of certain terms in the agreement such as requiring signing a release to get one's owed wages or other illegal terms that might render a clause or the entire agreement unconscionable;
13. Choice of law and venue for resolution of disputes arising from the agreement;
14. Dispute resolution procedures, such as arbitration instead of the courts;
15. Will there be prevailing party attorney fees and costs provisions in disputes over the release;
16. Receipt of health insurance post termination; receipt of unemployment benefits despite receiving a severance payment;
17. Scope of release; WHO and what will be released; unilateral vs. mutual releases [warning: incompetent attorneys fail to address obtaining a mutual release];
18. How vacation will be calculated.  For example, some employers count the months of severance pay as months employed for calculating vacation that will be paid.  This might result in thousands of dollars more severance pay;
19.  How will wages be calculated, such as when commission payments might be owed if the employee had not been fired.  And what about a December bonus that is paid only if one is employed in December and you are being fired in August.  Can you still get the bonus? 
20.  How will retirement, 401K, and stock options be calculated or otherwise handled.
21. OWBPA and WCAB Compliance - This is intentionally left obscure, so you can bring it up with your attorney.  If your attorney does not know what these acronyms refer to or the issues they present, get a different attorney.
 
BEFORE YOU SIGN ©  any agreement, you should contact an attorney to review your separation terms and proposed agreement.  While an attorney can explain your rights, duties and obligations under a proposed agreement, often times the attorney can negotiate better agreement terms including additional months of severance pay.
Bonus Tip:  The attorney retained to review your agreement should be able to tell you beforehand if negotiations might result in additional severance monies.  While no attorney can guarantee a specific result, experienced counsel have a general feel of how things might go should you retain his or her services.  Over the years our policy has never been to take a case should we get a feeling that our efforts would not yield a better result than that which is already being offered to the employee.


 

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*Tip of the hat to you for reading this footnote.  It is quite impressive that you read this entire page and got down this far.  As I said on the main index page, you truly are a person of superior intellect.
 		  
Anyway, just want you to note that the numbered paragraphs above constitute some of the most valuable information on employlaw.com.  It is a checklist of issues that I compiled after 24 years of dealing with severance and release agreements.  Many of the items listed are missed by even the most experienced lawyers.  Because I am retiring from law I am passing on the torch on to you, so to speak.