It is usually not with a feeling of great joy that an employee reads the separation agreement just handed over by his or her soon-to-be former boss. And while your head may be spinning with anger and anxiety now is the time to put those thoughts aside and take a deep breath. There is a popular misconception that all of these agreements are “standard” and don’t require much review. Not true. There are many variations of key provisions that can have significant impact on your career or financial well being down the road. And many of these provisions are negotiable.
First of all, a “separation” agreement is not the same as a “severance package”. A separation agreement is the entire contract that details an employee’s termination including terms about items like continued pay, benefits and potential legal actions against the employer. In the simplest terms, “severance” means an amount of money that the employer pays you after your termination (usually as consideration for your agreeing not to sue them for firing you). The severance pay is usually included as one of the terms in your separation agreement. But, remember, this is a contract and you will be bound by its terms just like any other contract.
Before you begin to read through the agreement, you must first review your own employee documents (your employee handbook or, if you were lucky, an employment contract) to see if you are entitled to pay or benefits notwithstanding the terms of the separation agreement. For example, state law requires your employer to follow its stated policy about paying you for your accrued but unused paid leave time such as vacation time.
Next, begin mentally preparing for discussions with your employer. Do you think you were terminated on the basis on race, age, sex, national origin, disability, pregnancy, or religion? Did your boss fail to pay you a commission or a bonus previously promised? Were you fired in retaliation for reporting sexual harassment or for filing a Worker’s Compensation claim? It’s important to sort through these issues because the most important aspect to your employer is your agreement not to sue the company; otherwise known as a “release of claims.”
A release of claims clause basically prevents you from taking legal action against your employer for acts that affected your employment. For example. these claims could include discriminatory acts (e.g. I didn’t get the promotion because of my age, sex, race, disability, etc.) or a failure to pay you some amount of money that you were entitled to (e.g. We agreed that I would receive a percentage from the sales I generated). Employers do not want to spend time and money defending claims from their former employees. If you are looking for more favorable terms in the agreement, now is the time to voice any potential legal claims that you think you may have. This is not about threatening your former boss; it is about negotiating for a fair amount to release potential claims. Remember, however, that in most at-will employment situations, an employer is not required to offer you anything (agreement, severance or otherwise) in connection with your termination.
Now you are ready to analyze your separation agreement. Here is a small sample of some key issues that you should check for:
- Lump Sum or Installment Payments
If your employer is offering severance compensation, make sure that the contract says exactly how much and how it will be paid, whether in installments, in one lump sum, or any other variation. This could have possible tax consequences that you should be aware of.
- Non-Compete Clause
Be on the lookout for a non-compete clause which may strictly limit your ability to obtain a new job in the same field in which you were working, whether by time, geographic area or other restrictions. Unless you are embarking on an entirely new career, this is very important. If the time limit on getting another position in the same field is longer than the number of weeks of your severance, it might not be worth it.
- Mutual Non-Disparagement Agreement
If you are leaving on less than favorable terms, ask for a “neutral” reference and a non-disparagement clause. This will be mutually beneficial for you and your employer: you agree not to bad-mouth your employer and/or the company and he returns the favor by agreeing to give you a reference with only the dates and position of your employment, and not to disparage you to potential employers.
There are other terms to consider such as confidentiality provisions, prohibition on re-applying for employment, participation in health and life insurance programs, letters of reference, and eligibility for unemployment compensation. These agreements are rarely “standard” and there is often room to improve the terms if you know what to look for.
The Equal Employment Opportunity Commission has information on severance agreements as well. You can find it at this link: http://www.eeoc.gov/policy/docs/qanda_severance-agreements.html