Losing a job can be stressful and emotional. You feel like the rug has been pulled out from under your feet as you worry about how you’re going to keep a roof over your head and food on the table.
If your employer offers you a severance agreement, it can feel like a lifeline while you’re trying to determine your next few steps. But you may want to take the time to review the severance package thoroughly. Many employees assume that it’s simply financial assistance during a transition period. However, these agreements often contain important legal terms that can affect an employee’s rights.
What is a severance agreement?
A severance agreement is a contract between an employer and an employee that may be offered when employment ends. Severance packages can include:
- Lump-sum payments
- Continued salary for a period of time
- Extended health insurance coverage
- Payment for unused paid time off
But, in exchange for compensation or benefits, the employee may need to agree to certain conditions requested by the employer.
One of those conditions may be giving up the right to file legal claims against the employer. By signing the agreement, the employee may waive claims involving:
- Wrongful termination
- Workplace discrimination
- Harassment
- Retaliation
- Wage and hour disputes
In many situations, the employee won’t be able to pursue compensation through a lawsuit later once they’ve waived those rights.
Severance agreements often contain confidentiality or non-disparagement provisions. These conditions can restrict what an employee can say about the employer or the circumstances surrounding their departure. They may be prohibited from discussing the amount of severance paid or stating any negative opinions about the company.
Employers often give employees limited time to review the severance agreement. They may pressure the employee to sign quickly, especially during layoffs or restructuring. It’s important to note that older workers may have additional review periods under the Older Workers Benefit Protection Act.
But rushing into an agreement can have long-term consequences. Severance agreements are often written to protect the employer’s interests. A legal representative can review the package and determine whether the compensation is reasonable, which claims may be waived and whether additional negotiation is possible. In some situations, it may be possible to negotiate better terms before signing.