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How Do Severance Agreements Work?
A severance agreement is a binding contract under which employers agree to compensate employees after their work relationship ends in exchange for a promise from the employee not to file a lawsuit against the employer in connection with the termination, as well as the employee giving up certain other rights.
Severance agreements are used by employers to limit their liability, essentially “buying” their release from liability from an ex-employee. The agreement might also contain specific conditions, such as preventing the employee from discussing insider information, trade secrets, or the facts of their wrongful termination with outside parties.
Related Article: Wrongful Termination in California
What is the Typical Severance Package?
Severance pay is usually based on the number of years you've worked for your employer. At most companies, you'll get 1 to 4 weeks of pay per year of service; however, it is not unusual for employers to pay out 2 weeks of pay for each year at the company. Every company calculates total severance pay differently.
Do I Have to Sign a Severance Agreement?
No. You are not required to sign a severance agreement. You may disagree with the terms being offered and/or want to negotiate for better ones. You may decide against signing the agreement if you intend to sue your former employer and do not want to accept the benefits offered in exchange for agreeing not to file suit. Weigh the pros and cons of accepting or rejecting a severance agreement carefully before deciding whether to sign.
Related Article: Average Wrongful Termination Settlement
What Happens if I Decline to Sign a Severance Agreement?
As stated above, employees may refuse to sign a severance agreement if they believe it is not in their best interest. However, an employer can legally withhold payments if the employee refuses to sign the agreement.
This is why the employee should carefully consider their personal financial and potential employment situation when deciding whether to sign a severance agreement. If the employee desires to go to work for a competitor, has a valid complaint against their former employer, or anticipates being unemployed for a long time, it may be in their best interest to refuse to sign the severance agreement.
What Voids a Severance Agreement?
Fraud, misrepresentation, duress, or unconscionability are all defenses you may potentially use if you desire to get out of a severance agreement that you already signed. Although these defenses are rarely successful in court, it is possible to prevail if the severance agreement was arrived at through deceit or bad faith on the part of your former employer.
FAQs
Can a severance agreement affect my eligibility for unemployment benefits?
Yes, signing a severance agreement can affect your eligibility for unemployment benefits. Some agreements include clauses that may delay or reduce benefits. It's crucial to understand how the terms impact your ability to claim unemployment.
Are severance agreements negotiable?
Yes, severance agreements are often negotiable. You can negotiate terms such as the severance pay amount, continuation of benefits, non-compete clauses, and outplacement services. Consulting a lawyer can help ensure you get a fair deal.
Should I sign a severance agreement without legal advice?
No, you should not sign a severance agreement without legal advice. A lawyer can help you understand the terms, identify any unfavorable clauses, and negotiate better conditions to protect your rights and interests.
What if the severance agreement includes a non-compete clause?
If the severance agreement includes a non-compete clause, consider the impact on your future employment opportunities. Non-compete clauses can restrict your ability to work in your industry. Consult a lawyer to evaluate the enforceability and negotiate if necessary.
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