How do you know if your severance package is fair or not? Did they offer you enough money? Are you getting ripped off? What does all that legal mumbo-jumbo in the agreement actually mean? This article and video will answer most of your severance questions and explain your options.
Severance deals in California come in all shapes and sizes, and most people find the contract terms to be very confusing. The only way to properly determine if you’re getting a good deal is to have an employment lawyer do three things:
- Review the actual contract,
- Carefully examine the facts and circumstances surrounding your termination and employment, and
- Explain which of the four options (more on those below) is best for your situation.
Unfortunately, lots of people call me after they’ve signed a severance agreement for a few thousand dollars, only to discover that they had a case worth hundreds of thousands of dollars. Don’t be one of these people. Before you sign, have an employment lawyer like me do a severance review.
This article and video will go into extraordinary detail on severance agreements, negotiation, and lawsuits. I highly recommend that you watch the below video and read this article in full before you decide to sign a severance agreement.
If you’re in California and you already know you need a lawyer to review your severance package, contact us here.
Watch this Detailed Video on Severance Value, Fairness, Negotiation, and Strategy
You Have Four Ways to Respond When Presented with a Severance Agreement
As I explain in the video, when you’re terminated and then presented with a severance offer, you have four options how to respond:
- You can ignore the offer, find a new job, and move on with your life.
- You can accept the severance package as it was offered, sign it, and collect your money.
- You can try to negotiate for more money or better contractual terms.
- You can reject the severance offer and file a lawsuit against the company (assuming you have a good case).
How do you choose which one is best for you? Just like any difficult decision in life, you need to weigh the options against something. If you don’t have anything to compare these choices against, you can’t possibly make an educated decision. Keep reading to learn how to compare these options.
To Pick The Right Option, You Need to Answer These Two Questions
You need to figure out what you are giving up if you sign the severance agreement. While there are a lot of important terms and conditions in the severance agreement (more on those below), I’m going to focus on the main one here.
When you sign the severance agreement, you give up your right to sue the company for employment violations. Therefore, before you sign, you should have an answer to these two questions:
- Did the company violate the law when they terminated you or during your employment?
- If the company did violate the law, how much money could you recover by taking legal action?
The only way to get an honest idea of the answer to these two questions is to have an actual lawyer examine the facts surrounding your termination and review the terms of your severance agreement. Once you have an idea of how much money is at stake and the strength of your legal claims, you can compare it to the severance offer and make an educated decision.
You Must Also Examine the Risks Associated With Each Option
While this might seem obvious in theory, reality is far more complicated. It is almost impossible for a non-lawyer to come up with educated answers to the below questions. Regardless, here are questions that should be circling around in your head:
- How much money is my case worth?
- How strong (or weak) are my legal claims?
- Will they pull the current offer off the table if I try to negotiate?
- Will I make a mistake during negotiations and torpedo my case?
- Do I actually understand what is in the contract?
- What are the chances they will respond to my counter offer with something fair?
- How much stress is this going to put on me and my family?
- Will this hurt my chances to get a good reference?
- If I make a mistake in my negotiation, will I get sued for extortion?
- If I sign this agreement, am I inadvertently putting myself in legal jeopardy?
Unfortunately, most individuals tend to underestimate the risks they face. Since every case is drastically different, and employment law is so vast and complicated, the only way to get a genuine picture of the risks that you face is to have a professional analyze and explain them to you.
What Terms are Contained in Your Severance Agreement?
While most severance agreements contain these basic building blocks, every single one is different. So read your contract carefully! If you do not understand parts of your agreement, I strongly recommend that you have it reviewed by a lawyer. But for purposes of this article, here are some of the major terms:
- You lose the right to sue for most violations of law (a.k.a. the release of claims). This includes suing for wrongful termination, discrimination, hostile work environment, unpaid overtime, retaliation, and many other things.
- You agree not to say anything bad about your former employer (a.k.a. the non-disparagement clause). This provision is especially dangerous if it contains a liquidated damages clause (this is a monetary penalty that you incur for each violation of the provision).
- You cannot tell anyone about how much money the company paid you in severance (a.k.a. the confidentiality clause).
- You lose the right to sue for violations of law that you don’t even know about yet. This isn’t 100%, however, as you cannot legally waive some claims (like a workers compensation claim).
- You usually re-affirm and agree not to discuss the employers trade secrets, secret business practices, and customer lists. This can cause serious problems down the road if you plan to continue working in the same industry or for a competitor.
- You usually agree to “cooperate” with the employer down the road if they need assistance with things that arose out of your employment. This usually means you agree to assist the employer if they get sued by someone else. Yikes!
- You usually also have to agree that, by accepting the money, the contract does not amount to an admission of wrongdoing by the employer.
Obviously, there is more to the agreement and each agreement is different. But most of the agreements that I’ve reviewed have these terms.
Why is Your Employer Pressuring You to Take the Severance Deal?
Simple, they want to avoid a lawsuit. In today’s litigious world, employers offer money to “problematic” employees at termination in an effort to buy their way out of a lawsuit.
Employers are not required to offer severance. It is not a legal right. Just because your company offered severance to one employee, doesn’t mean they have to offer it to you.
But therein lies the rub. Why is the employer offering money to you? Why didn’t they just fire you? Here are some common reasons:
- They are worried that you have good legal grounds to sue them, and they are hoping you’ll take the quick cash and move on.
- They have a company policy that they offer severance to everyone, and you’re just the latest person to get laid off.
- The employer specifically thinks you are a problematic employee, and they want you to go away. The severance payment is a just a carrot to get rid of you.
- You may have witnessed something unlawful at work and they want to buy your silence.
We often hear stories about employers terminating a worker, and pressuring them to sign the severance deal right there in the termination room. Don’t do it!
We recommend that you say to them, “Thank you, but I’m going to take this home and read it fully before I sign it. If there is anything I don’t understand, can I email you questions?” Then, once you get home, contact a lawyer for a severance review.
If you’re a California employee and you have decided to have a lawyer look at your severance agreement, I hope you’ll consider hiring my office. You can contact us here.
If you have decided to negotiate on your own for more money (we don’t usually advise this), we have an entire webpage on this. Please watch the video on this page carefully before you decide to take this route.