Understanding Severance Agreements: Insights from Hershey Law

Whether you are facing layoff whispers or just curious about what happens when your time at a company comes to an end, one thing’s certain: understanding severance agreements is crucial.

While accepting severance pay from your employer could look like a wise decision, it also means you agree to the “terms and conditions” listed in the agreement, such as you cannot sue the employer afterward.

California laws make severance agreements unique, and that’s why every Golden State worker must know the score. Keep reading to explore severance packages in detail. We will talk about what these contracts are and how they can be beneficial for you.

Want us to review your severance agreement and help you negotiate fair compensation from your employer? Give us a call at 310-929-2190 to schedule an appointment. Our expert employment attorneys are here to address all your concerns regarding the “layoff payoff contracts.”

👉Also Read: Are You Getting Fair Pay? The Ins and Outs of Labor Laws In California Minimum Wage

What is a Severance Agreement? Things Every Employee Must Know

A severance agreement, also known as a severance package, is an employment contract between an employer and an employee that details the terms of the employee’s departure from the company.

While some employers part ways amicably, others may involve unexplained layoffs, restructuring, or wrongful termination, and this is where severance contracts come in.

Typically, these agreements outline compensation or benefits to eligible departing employees in exchange for certain guarantees, such as a non-disclosure or non-compete clause.

A typical contract may include the following key elements:

Severance Pay

This is a financial compensation given to eligible employees upon departure, usually based on their salary, duration of employment, and employee termination circumstances. It acts as a financial cushion for the employee during their transition period.

Continuation of Benefits (Consolidated Omnibus Budget Reconciliation Act)

This part of the agreement may extend certain employee benefits post-termination, like health benefits, unemployment insurance, medical benefits, or retirement plan contributions. It is a way to ease the transition for the employee by maintaining some stability in severance benefits.

Non-compete and Non-solicitation Clauses

These clauses limit the employee’s ability to work with direct competitors or recruit former colleagues for a specified duration. They aim to protect the employer’s business interests by restricting the former employee from conducting professional activities.

General Release of Legal Claims and Covenant Not to Sue

In this clause, the employee agrees not to pursue legal action against the former employer related to their employee’s termination. It is a legal safeguard for the employer, minimizing the risk of future litigation.

Confidentiality and Intellectual Property

These clauses protect the business’s sensitive information and intellectual company property. They legally bind the departing employee not to disclose confidential information and protect the employer’s proprietary assets and trade secrets.

Besides the above-mentioned elements, a severance package can also include:

  • Taxation and lump sum severance payment terms,
  • Reference handling specifies how the former employer will handle references for the employee, ranging from agreeing not to disparage the employee to providing neutral or favorable references.
  • Special provisions when releasing age discrimination claims under the Older Workers Benefit Protection Act (OWBPA) comprise a necessary consideration and revocation period for workers over 40.

It is essential for employees in California to review these contracts carefully before putting their signatures on the paper. To avoid any pitfalls, it is ideal to appoint an employment attorney, as these professionals can help you review the agreement and decipher the clauses that can affect or violate your rights or future opportunities.

Your Common Rights that a Severance Agreement Might Waive

So, you have been handed a severance agreement. It promises money, extra health insurance benefits, and a free pass out the door. Everything sounds perfect, right?

But have you ever wondered why employers offer such agreements in the first place when it costs them more money?

Before accepting the agreement, take a good, long look at what you might be giving up. As such, contracts can be a double-edged sword, and some clauses could seriously impact your rights.

Here is a rundown of some common employee rights that get the boot under severance agreements.

The Right to Sue

Did your boss mess up, or did someone in the office indulge in an unlawful activity? You might have legal grounds to sue for things like discrimination, wrongful termination, harassment, or unpaid wages. But a sneaky severance clause could make you waive that right, leaving you with a handshake and a bitter taste.

The Right to Compete

Even if you have the skills to build a business from scratch, the non-compete clause in the contract could put your entrepreneurial dreams on hold. These agreements restrict your ability to work for a competitor or start your own business in a similar field for a certain period.

The Right to Confidential Information

Some employers may insist on confidentiality provisions that restrict employees from disclosing proprietary information or the terms of the severance agreement itself. This can impact your ability to share their severance package details with other employees or people outside the company.

The Right to Unemployment Benefits

In exchange for severance pay, employees might be required to forfeit certain benefits, such as unused vacation days, stock options, or future bonuses. It is essential to review the contract carefully to ensure it does not relinquish your unemployment benefits.

The Right to Talk

Some severance agreements may include provisions prohibiting employees from making negative statements about the company, its employees, or its business practices. While these clauses can protect the company’s reputation, they may limit employees’ ability to openly discuss their experiences.

The Right to Seek Help from Government Agencies

There are several state and federal government agencies that employees can reach out to resolve employment disputes. However, accepting a severance agreement might waive their right to file complaints with government agencies, such as the Equal Employment Opportunity Commission (EEOC) or the California Department of Fair Employment and Housing (DFEH).

It might look like severance agreements only benefit the employer, but they are equally beneficial for the employees, provided the recipients consult an attorney before accepting them. If you have received a severance contract from your boss, make sure to talk to employment law attorneys to understand the clauses thoroughly.

6 Reasons to Hire an Employment Lawyer When Accepting Severance Agreements in California

Navigating a severance agreement can be a complicated process, especially in California, where laws are often more employee-friendly compared to federal law.

Here’s how onboarding skilled employment lawyers in Los Angeles can provide numerous benefits and protections when considering or negotiating a severance agreement.

They Understand the Complex Employment Laws

The California law has specific employment protections that differ from the laws of other states. An experienced attorney specializing in these laws will have a deep understanding of the nuances and can provide you with guidance tailored to the state’s legal landscape and your specific situation.

Lawyers Protect Employee Rights

Employment lawyers are well-versed in the rights and protections afforded to employees by several state and federal agencies. They can help you identify any potential violations of your rights and ensure that the severance agreement aligns with the state’s employment laws.

Negotiate Better Terms

The offered severance package might not be the best you can get. Your lawyer can negotiate for higher severance pay, continuation of benefits, outplacement services, and other favorable terms based on your situation and the applicable laws.

Minimize Your Potential Risks

Certain clauses in severance agreements, like non-compete or non-disparagement clauses, can restrict your career opportunities or freedom of speech. Your attorney can identify and negotiate to remove or modify such clauses to minimize your professional and reputational risks.

Reviewing the Legalese

Severance agreements are often filled with legalese and complex language designed to benefit the employer. Your lawyer can decipher the legalese, explain the implications of each clause in simple language, and ensure you understand exactly what you are signing.

Protection Against Retaliation

If you have concerns about retaliation or believe that the severance offer is connected to discriminatory actions, an employment lawyer can advise you on how to protect yourself and your rights.

Investing in an employment lawyer’s expertise is an investment in your future. So, don’t overlook their legal help when making important decisions like accepting a severance agreement.

👉Also Read: Know Your Rights: When to Consult a Wrongful Termination Lawyer for Employment Disputes

Get the Compensation You Deserve: Contact Hershey Law

When your employer’s attorneys draft a severance agreement, they make sure to give their client an advantage. And why not? One of the reasons for offering severance pay is to prevent the employees from filing lawsuits.

To ensure your rights remain intact and you get the post-employment benefits that your employer promised, you need our lawyers by your side. From reviewing the contract to negotiating the severance agreement terms, we go above and beyond to make sure the severance agreement is as beneficial as it is for your boss.

Book a free consultation with us, and get the legal shield you need to dodge anything that could violate or waive your employment rights.