A company should never pressure you to sign a Severance Agreement right away. Typically, workers over the age of 40 have 21 days to consider the agreement and seven more days after signing to change their minds.
Other economic benefits can be included in severance packages, such as continuing health insurance and assistance finding another job. These are often more important to an at-will employee than a release of claims.
Pay or Wage
A severance agreement is more than just a pay package. It can also include other provisions such as a non-disparagement clause that prevents an employee from speaking negatively about the company or an attachment to a reference check form requiring that the employer provide a neutral letter of recommendation. A lawyer can help evaluate these terms to ensure that they are fair and do not compromise the ability of a former employee to get a new job.
When an employer is considering eliminating jobs, laying off employees or closing facilities, it can be tempting to agree to a severance package that will offset the loss of income and cover expenses for a while. A severance agreement can waive an employee’s right to sue for wrongful termination, discrimination and sexual harassment or reveal confidential business information that could hurt the company. It is important to take time to consider this offer and review it carefully. Even if you are over 40, you are entitled to 21 days to consider the severance agreement and seven additional days to change your mind.
Insurance
Since the law in New York states that companies are at-will employers and can fire employees at any time, a company may want to require its fired employees to sign a severance agreement. This contract provides consideration like money and benefits in exchange for the employee’s promise not to sue the company.
Some severance agreements include insurance provisions, such as confidentiality and liquidated damages clauses. While confidentiality clauses are routine and legal, liquidated damages can be challenged if the amount of damages is difficult to estimate or if it is a penalty.
Most severance agreements offer the opportunity for an employee to continue health care coverage under COBRA (Consolidated Omnibus Budget Reconciliation Act), which requires businesses of certain sizes to provide continued health care coverage for workers who lose their jobs. In addition, some severance packages cash in unused vacation and sick days. The cost of continuing COBRA is typically 102% of the monthly premium for former employees.
Retirement Benefits
Severance pay is often the most significant component of a severance package, and it can be in the form of a lump sum payment or regular payments. Company policies can vary on how this is determined, and employment lawyers may help employees negotiate the terms of this portion of the agreement.
Other perks that might be included in a severance agreement include continuing insurance coverage and assistance in finding another job. Companies also often agree not to bad-mouth former employees or share secrets with competitors.
Employees over age 40 might find a reference check clause in their severance agreement. This is intended to prevent the former employer from giving a negative reference. Some employers will even agree to provide a positive reference letter for the employee. This is important for the employee to understand before signing a severance agreement.
Other Economic Benefits
Many employers provide a severance package to employees who are laid off or terminated. This helps limit damage to the company’s intangible assets like goodwill and reputation as a great place to work. Companies also want to limit the risk of employment-related lawsuits, including claims of wrongful termination, discrimination and harassment, pay equity, family and medical leave, and wage and hour violations.
Severance packages often include other economic benefits like continued insurance coverage and a lump sum payment for unused paid time off. A revocation clause that indicates how long a former employee has to revoke acceptance of the agreement is another common feature.
Continuing access to a company car, cell phone or other personal property can be included as well. However, some companies insist that workers return these items after termination. A release of liability is also commonly included in a severance agreement. This waiver precludes the terminated employee from pursuing legal claims against the company based on their termination or former employment.
