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Severance Agreements

In some countries like Mexico, a company is required to provide a certain amount of severance if an employee is terminated. In others, like Canada, the employer is required in most circumstances to give an employee advance notice of termination. This is not so in the United States.

Most employees are “at will”. They can quit at any time and they can be fired at any time. This creates risks for employer and employee alike. The severance agreement helps to resolve this problem.

The Nature of Severance Agreements

Although either the employer or the employee may terminate the employment relationship at any time as discussed above, both parties tend to try to avoid doing so because of the damage it can do. Where an employee quits without notice, the employer has the problem of no one doing the job until it can find a replacement. Where the employer terminates an employee without notice, the employee is suddenly without an income until he or she finds a new job.

To accommodate the employer, an employee often gives “notice” which usually means telling the employer that he or she will be quitting in a week or two. During that time, the employer will look for a replacement. The other side of the coin is severance. Although a company might give an employee notice of termination, more often it is easier to simply pay the employee some amount of money, known as severance pay, and let the employee go immediately.

But a company will rarely provide severance pay without a severance agreement which requires the employee to waive all legal rights, and those rights often have significant value. They should not be waived without thought.

Negotiating A Severance Agreement

There are three different ways that negotiations of severance agreements come about. One is where the employee has been fired and the employer offers a severance agreement. A second is where the employee wants to quit and seeks an employment lawyer to negotiate a severance. The third is where an employee has been fired and no severance agreement was given, but he or she now approaches the employer seeking one.

Just because a company offers a severance agreement does not mean that you should accept it. You may be waiving rights. For example, if you faced wrongful termination, you may have rights that are worth more than the severance agreement gives you for waiving them. Perhaps the severance agreement includes a non-compete, which would make it hard for you to find other work. Perhaps it simply does not provide enough money.

You should always have an employment lawyer review the severance agreement. The employment lawyer will want to talk to you about what you want to do for work in the future and what reasons you were terminated. This enables the employment lawyer to find any traps or claims you might be waiving and be in a position to negotiate the severance agreement accordingly. Sometimes this simply means that you need more money, but other times it means that there needs to be an adjustment to the severance agreement.

If you wish to leave a job, it is worth talking to an employment lawyer to see if a severance agreement can be negotiated. Why would a company want to do that? Well, the severance agreement will provide the employer certain protections and it is always good policy for a company to give severance so that employees are not afraid that they could lose their jobs and start looking for another job just in case.

Vacation Pay

If you have earned vacation time, the company must pay you for any unused vacation. A severance agreement that simply provides the vacation pay is probably invalid because it does not meet the standards of a contract – that is you get nothing new for waiving your rights. You get the vacation pay anyway.

Impact Of The Older Workers Benefit Protection Act (OWBPA)

Because companies seek to have employees waive rights in signing a severance agreement, certain conditions must be met. In order to have the employee successfully waive age discrimination claims, the severance agreement must comply with the Older Workers Benefit Protection Act (OWBPA). This act requires that the employee get a minimum of 21 days to review the severance agreement before signing it and have at least seven days after signing it in which to revoke his or her signature. This often results in companies refusing to pay any severance until seven days after the agreement has been signed.

The OWBPA applies only to employees who are over 40 years of age. Nonetheless, because companies often use standard form severance agreements, provisions to comply with the OWBPA may be included in your severance agreement even if you are under 40 years of age. Often an employment lawyer can negotiate to get the severance faster because the OWBPA provisions are not necessary.

If you have been asked to sign a severance agreement you should review it with an employment lawyer and consider your rights carefully. You may be waiving causes of action against your company. At Maduff & Maduff we have negotiated with numerous companies to increase the severance payments to employees on behalf of our clients. We may be able to do so for you too.