So, You've Been Handed A Severance Agreement – Now What?

An Attorney's Brief Perspective To Improve Your Chances 
For A Better Exit Package When Involuntarily Leaving Your Job

In these continuing uncertain economic times, few things match the anxiety felt by an employee when told that he or she will be losing their job. Whether long term or a relatively recent hire, most employees value their position in a company and may feel that that they have been unfairly chosen for involuntary termination. Unfortunately, the company's decision is most often final and rescinding a termination is very unlikely. Even still, under some circumstances, an exiting employee may be able to improve the terms of a severance offer. Understanding that an offer of severance is generally not legally required (unless contained in a written employment agreement or other employee benefit plan), an employee can take a number of steps to optimize their exit.

What to do immediately:

1. Minimize confrontation - While inflammatory comments may feel good at the time, they will seriously undermine your ability to change the terms of your severance offer later. Resist the temptation to say or do anything that will create an adversarial relationship between you and your former employer. In particular, do not attempt to explain why other employees (instead of you) should have been let go or why someone is to blame for the decision to terminate you. As hard as it may seem, accepting your termination as a business decision will serve you well in the process.

2. Assemble all relevant documents (and other sources of information regarding your employment) as soon as possible - Make sure to keep copies of your employee handbooks, benefit plans, confidentially and/or non-compete agreements (previously signed by you) summary plan descriptions ("SPDs"), notices of changes to benefit plans, and any correspondence (written and electronic -- including email) from your employer that touches on your employment relationship. If you don't have copies of any of these important documents, ask for them now.

3. Calendar deadlines - Almost all written severance agreements will contain specific deadlines for which an employee to sign and return the severance agreement. Because federal law requires specific notice periods for many covered employees, it is likely that you will be given a period of time to consider an offer of severance. Do not put off your decision making until there is little or no time left to explore better severance terms with your employer.

4. Be aware of your post-termination obligations - Many employees overlook the fact that they may have signed non-compete agreements or other restrictive covenants with their employer at some time in the past (in many cases many years in the past) that may still remain enforceable for a significant period of time after termination. Moreover, a written severance offer may actually attempt to create a new non-compete (or other restrictive covenant obligations) or restate (in more legally enforceable language) such post-termination obligations in previously signed documents. An exiting employee's often mistaken belief that his or her involuntary termination or severance agreement eliminates or minimizes an employer's right to enforce these obligations is at best problematic, and at worst, disastrous when trying to find replacement employment. Any underlying restrictive covenants can and will affect your prospects for future employment and cannot be overlooked in the severance process.

5. Assess your rights - Under the vast majority of severance agreements, you will be asked to sign a release as a condition of severance. It's there for a reason. Depending upon your individual employment situation, by signing the release contained in a severance agreement, you will most likely be waiving most of your legal rights surrounding your employment relationship. If you have any pending benefit claims, are benefit eligible at the time of your termination (for disability benefits for example) or you have unresolved claims under an employer-promulgated benefit plan, be very wary of signing a release.

6. Consider legal counsel - An employment lawyer can help you a number of ways. First, an attorney can assess whether or not you have been terminated illegally under current state or federal law (discrimination and retaliation being fairly common) and whether your legal position can help facilitate further severance negotiations with your employer. Secondly, an employment attorney can apprise you of your potential post-termination (non-compete) obligations and help you navigate out of your current employment while offering you an approach to reduce the chances of claims by your employer when you become reemployed. Finally, in some circumstances, an employment lawyer may advise you not to sign a release at all pending further analysis of your legal rights and the possibility of other claims against your employer. When considering legal counsel, however, please remember that seeking legal advice (or retaining an attorney for that matter) is not a silver bullet for a "better" severance. While improving your exit package with more money is certainly a worthy goal, an experienced employment attorney can also help you address the very real challenges of non-compete obligations following termination, help you assess eligibility for employee benefits, and help negotiate for non-monetary additions to your severance agreement (like delaying a termination date or not contesting unemployment benefits, for example).

7. Don't forget your post-employment safety net - File for unemployment immediately. Expect to receive your COBRA[1] notification to extend your health insurance coverage. Evaluate your health care needs against your other financial obligations and make a reasoned decision about continuing your health care benefits. Be mindful there may be a waiting period to receive health insurance at a new company so COBRA continuation may be essential to continuing coverage. Do not wait until the COBRA deadlines are looming to evaluate your options.

8. Keep a copy of your signed severance agreement - Whatever the outcome of your particular severance process, keep a copy of the severance agreement you sign. Evaluating the extent and enforceability of your release and analysis of your post-employment obligations may become very important at a later time.

Using this practical commonsense approach has served both my clients and me well over the years. I hope it helps you. Good luck.

1. The Conciliated Omnibus Benefit Reconciliation Act of 1980 (more commonly known as "COBRA") will be discussed in a later informational article. This federal law requires continuation of certain health and welfare benefits to employees following termination.