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What To Consider Before Signing Your Severance Package

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Many employers provide departing employees with a severance agreement after layoffs or terminations. This document details the compensation and benefits you may receive, like severance pay or post-employment support.

However, signing a severance agreement also involves waiving certain rights or agreeing to specific terms and conditions in exchange for these benefits. In California, severance agreements are legally binding contracts. Depending on how the agreement is structured, signing it may not always be in your best interests.

Learn what to consider before signing your severance package and how a California employment law attorney can help you protect your rights.

What’s in Your Severance Package?

The exact contents of a severance agreement vary depending on the employer, the industry, and the nature of your termination. A typical severance package includes multiple benefits like the following:

  • Severance pay. This compensation is typically a lump sum or periodic payments calculated based on your salary and years of service. Usually, it amounts to several months’ salary.
  • Health insurance. The employer may continue providing the company’s health insurance for a specified period. These benefits are typically provided through the federal Consolidated Omnibus Budget Reconciliation Act (COBRA) law and its state-level counterpart in California, CalCOBRA.
  • Job-finding assistance. Your employer may provide help with finding new employment, such as recommendations, resume writing help, or career counseling.
  • Retirement benefits. If you accrued any retirement benefits or contributions to a retirement account, your employer may offer the option of paying them out as part of the severance package.
  • Accrued PTO. Employers may offer compensation for unused paid time off (PTO), such as sick days, unused vacation, or personal days.

Know Your Rights Before You Sign

Under California law, a severance agreement is considered a legally binding contract. Before signing an agreement, you are entitled to specific rights under various provisions of the California Labor Code and contract laws:

  • Right to review. You have the right to adequate time to review any contract, including severance packages. California GOV Statute 12964.5 mandates a minimum of 5 business days to review a severance agreement. If you are over 40, the federal Older Workers Benefit Protection Act (OWBPA) grants you a minimum review period of 21 days.
  • Right to legal counsel. You have the right to ask an employment law attorney to review and assess a severance contract. Statute 12964.5 explicitly outlines the right to consult an attorney during the 5-day review period.
  • Right to fair and reasonable terms. The terms of your severance agreement must be fair, reasonable, and within legal limits. For example, it may not contain a non-compete clause (Business and Professions Code Section 16600), non-disparagement provisions (Government Code 12964.5), or a waiver of workers’ comp benefits (Labor Code Section 5000).
  • Right to voluntary consideration. Under California’s general contract law (Civil Code Section 1550), a contract is only valid with voluntary consent. You may not be unduly pressured or forced to sign a severance agreement.

Importance of Legal Advice

Although severance packages may seem beneficial, signing one often means waiving specific rights in exchange for the outlined benefits. It is advisable to consult a knowledgeable employment law attorney to review your contract. They can ensure you don’t sign an unfair, illegal, or undesirable agreement that could leave you without proper severance compensation by doing the following:

  • Clarify the rights you’re giving up. An attorney will explain any rights you waive by signing, such as legal claims against the employer and their potential implications for your future.
  • Evaluate the fairness of the terms. Your legal team will ensure the agreement’s conditions are fair and comply with current laws.
  • Identify problematic clauses. A lawyer can identify and advise on terms that may be unfavorable or legally questionable, like restrictive non-compete clauses.
  • Negotiate better terms. Your attorney can argue for more favorable conditions, like higher severance pay or extended benefits.
  • Discuss the long-term impact. An experienced lawyer can explain how the agreement could affect your future career options and legal rights.
  • Ensure compensation is appropriate. An attorney can assess if the severance pay offer matches your service duration, position level, and industry norms.

Negotiating Your Severance Package

If the benefits in the proposed severance agreement do not meet your needs or accurately reflect your value as an employee, you have the right to negotiate for a better package. Your attorney can assist you in negotiating, offering strategic support, and helping you secure a higher-value severance package.

  • Building a negotiation strategy. Your attorney can work with you to establish a negotiation strategy detailing the benefits you should receive or are entitled to. They can also identify unfair or unenforceable clauses and help you leverage them to secure more favorable terms.
  • Negotiate on your behalf. An employment law attorney can negotiate with your former employer on your behalf. They can handle communications, advise you during face-to-face meetings, and ensure you are not coerced or pressured into signing.
  • Protecting your interests. An attorney can review your employer’s new terms or benefits, ensuring they meet your needs without unduly restricting future opportunities. They can also help you understand the financial implications of any severance pay, helping you obtain more advantageous terms.

Tips for Evaluating the Final Offer

Whether you are considering the initial package or have negotiated better terms, the final decision to sign and accept the terms is yours. Here are a few tips to help you decide if the agreement is worth signing:

  • Review your personal circumstances. Ensure the offered pay and benefits adequately address your needs. The package should support your financial and insurance needs while transitioning out of employment. If you have a new job offer or potential opportunities, weigh them against what the benefits provide.
  • Understand the rights you waive. A typical, legally compliant severance package will waive specific rights, such as the right to sue for wage and hour disputes or participate in class actions against the company. Carefully review these waivers before making your decision.
  • Check industry standards. Compare the benefits you are offered with the industry’s standard severance packages for your years of experience. Severance pay and benefits vary depending on the sector and how long you’ve been in the position.
  • Make a final decision. After reviewing the facts and the potential pros and cons, consider whether further negotiation is necessary before deciding to sign.

Protect Your Rights Before Signing a Severance Agreement

If you have been laid off or terminated and are offered a severance package, ensuring its fairness is in your best interest. An employment attorney can inform you of the relevant laws, explain your rights, and help you review the offer. They can provide legal advice and negotiation assistance, helping you secure fair severance pay and benefits.

FAQs

What to do before signing severance?

Review the terms and conditions carefully. Consider the pay, health insurance coverage, and other benefits. Ensure the waivers do not unfairly restrict your rights. If you need help understanding your severance package, consult an employment lawyer to review the contract and provide legal insights.

Why you should not sign a severance agreement?

You should not sign a severance agreement if you feel coerced or pressured to sign, if the pay and benefits are unfair or insufficient, or if the waivers are too restrictive.

What are the red flags in a severance agreement?

Common red flags in severance contracts include overly broad confidentiality clauses, non-compete clauses, unclear or vague terms, and unlawful provisions. Have an attorney review the offer if any content seems illegal or unfair.

Can I change my mind after signing a severance agreement?

Typically, no. Most severance agreements are legally binding once signed. Review the agreement carefully and check whether it includes a revocation period allowing you to rescind.

Do severance agreements hold up in court?

Yes. A severance agreement is a contract; it becomes a valid legal document once you sign it. However, its terms can only be enforced if they comply with state and federal legislation. Seek an employment lawyer’s advice if you believe your severance contains unenforceable clauses.

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