The Clifford Law Firm helps individuals understand the terms of their severance offers. We take the time to review the severance agreements with our clients, paragraph-by-paragraph, to ensure that they fully understand all of the issues. We also help our clients decide whether they should reject the offer, attempt to negotiate more favorable terms, or pursue litigation. When selecting an attorney to review your severance agreement, you should make sure the attorney has significant litigation experience.
Attorneys who lack litigation experience are less likely to spot key issues that may provide you with significant leverage to negotiate a favorable severance package. For example, if the facts suggest that you were selected for a layoff or outright terminated for an illegal reason, then you may be able to negotiate a severance package that far exceeds what your employer is currently offering you.
Below, our Houston employment lawyer outlines important information to help you understand some of the basic issues with severance agreements.
A severance agreement addresses the terms and conditions of an employee’s departure from a company. In most severance agreements, the employee agrees to waive any legal claims against the employer, and the employer promises to compensate the employee. As explained below, there are many issues you should consider before you sign a severance agreement.
Federal law allows you to continue using your employer’s group health insurance plan for up to 18 months after your employment ends (in some cases, the timeframe can be extended). This federal law is known as COBRA (the Consolidated Omnibus Budget Reconciliation Act). Your COBRA rights exist even if your severance agreement fails to address them.
COBRA does not require employers to continue to pay any premiums after termination. Thus, if you elect COBRA coverage, you may be responsible for paying the full cost of the premiums each month.
Your severance agreement likely requires you to waive any legal claims you may have against the company. Be careful here. By signing the agreement, you might be waiving your right to payments that your employer already owes you, such as unpaid wages, commissions, bonuses, reimbursements, and unused vacation pay. You should ensure any payments you are entitled to receive are specifically addressed in the severance agreement before you sign it.
You are also giving up your right to pursue any claim for wrongful termination if you sign the severance agreement. If you believe you have a legal claim, you should speak with an employment attorney before you sign the severance agreement.
Overtime wages: You generally cannot waive your right to recover overtime compensation. Thus, even if you sign a severance agreement, you might still be permitted to collect up to three years of backpay for unpaid overtime compensation under the Fair Labor Standards Act (“FLSA”).
Unemployment benefits: You cannot waive your right to pursue unemployment benefits under Texas law.
Future claims: You generally cannot waive claims based on conduct that occurs after you sign the severance agreement.
The release-of-claims language in most severance agreements is one-sided. You’re agreeing to release all claims against the company, but the company isn’t agreeing to release any claims against you. An experienced employment attorney can help you determine whether you should insist that the employer agree to release any claims it may have against you.
Most employment relationships are “at will,” which means either party may end the relationship for any reason without notice. However, some employees have employment contracts that guarantee employment for a specific term (typically one or two years).
In most cases, the employee can recover damages if the employment contract is terminated early without “cause.” The definition of “cause” is typically set forth in the employment contract, but the definition is sometimes vague and the parties often dispute whether the employee engaged in conduct amounting to cause for termination. In such cases, a jury may have to decide whether the employer had cause for terminating the contract.
If you have an employment contract and your employer is offering you a severance agreement, you should speak with an attorney about your specific situation. If you sign the severance agreement, you may be waiving your right to recover substantial damages resulting from the employer’s breach of your employment agreement.
Yes, if you are 40 or older, you have special rights under the Older Workers with Benefits Protection Act (“OWBPA”). Under the OWBPA, an age-discrimination claim cannot be waived, unless the severance agreement complies with a strict set of rules:
If you are age 40 or older, and your employer asks you to sign a severance agreement as part of a voluntary separation program, your employer must disclose the following information to you, in writing:
The idea here is that you are provided with enough information to determine whether the exit-incentive plan disproportionately impacts older workers.
If you are age 40 or older, and your employer offers you a severance agreement as part of an involuntary reduction-in-force, your employer must disclose the following to you, in writing:
If the data suggests your employer is targeting older workers, then you may wish to pursue a claim for age discrimination instead of waiving that right by signing the severance agreement.