The Implications Of Signing A Separation Agreement
Separation Agreements are often referred to as Severance Agreements. Some separation agreements usually include some form of monetary payment to the employee.
The separation agreement will contain terms that define the ending of the employment relationship and include the conditions and obligations of both the worker and the employer upon their separation.
Often, the employer will offer severance to the worker so the worker will sign a release of all claims against the employer.
Separation agreements
A Separation Agreement that contains something of value for the worker after employment can be varied. Some contain a lump sum payment, and others might include a series of monthly payments spread over time. Others might include additional “post-job-perks” – such as free enrollment in job training or placement services.
Because there is no legal requirement on behalf of the employer to offer you a severance payment(s), there is no set amount of severance pay you are entitled to – unless you have a contract (perhaps part of a union agreement) requiring your employer to pay you a predefined severance amount.
Many employers set a formula for severance benefits based on the time you worked before you lost your job, such as one week’s (or one month’s) pay for every year you worked for the employer.
Severance pay received in a lump sum or over time
That’s up to your employer. Many employers pay severance over time simply because they don’t have the money to pay you in a lump sum – especially if your co-workers have lost their jobs too, and the employer has to pay them severance money as well.
Be careful. If your severance is paid over time, you might not be able to collect unemployment insurance benefits during that time because the government agency that handles unemployment benefits might view your payments as wages. You should check with an employment attorney to see if that is the rule in your state.
COBRA and unemployment insurance
Under federal law, many employees who lose their jobs are entitled to keep their medical benefits for a specific number of months. The law is called the Consolidated Omnibus Budget Reconciliation Act or COBRA. Depending on the health plan the employee was under, the employee still had to pay a part of what it cost to be in the company medical plan.
The terms, structure, and payment schedules under the COBRA continuation plan have been regularly modified under unemployment benefits, especially when emergency payments were made under the Covid Rescue Plan.
Some employers offer severance packages that include the cost of those payments. That can significantly benefit the employee, as the cost of continuing benefits can be hundreds of dollars per month.
Asking for a letter of recommendation from a past employer
Some employers offer to write a good letter of recommendation as part of their severance package. That can be important to an employee – especially if the employee had trouble with the employer and might have difficulty finding a new job.
Negotiating your own severance package
Unless you belong to a labor union, in which case you will likely choose to have a union representative go with you to negotiate a severance agreement. Trying to negotiate severance benefits on your own is usually not advisable. One reason is these types of negotiations tend to get personal very quickly, and discussions can break down over a bruised ego.
There is also the issue of not knowing enough about employment law. For example, should you counter-offer with an additional and material term to their severance package, your counter-offer may legally allow the employer to revoke their original offer.
Collecting unemployment insurance while receiving severance payments
Since unemployment insurance benefits are meant for people who have lost their jobs and have no additional income, you might not be eligible if your employer’s severance package makes it appear like you are still working.
For example, suppose your employer keeps you on the payroll for several months and tells you not to come in while you look for future work. In that case, you might be viewed by the state as still working for the employer.
You should check with your state’s unemployment office on this issue before you file for unemployment benefits.
When severance is conditioned on the employee signing a release of claims against the employer
Some employers will offer you severance only if you agree to legally “release” the employer of any and all legal claims, including wrongful termination.
Current law allows for conditional severance, and courts usually will uphold the agreement. However, that does not mean you must agree to a release. Especially if the severance is insufficient and you believe you may have viable legal claims against your employer.
This stage can be a very sensitive part of the severance negotiation process. It would be wise for you to retain counsel to negotiate with the employer’s counsel on your behalf. Your lawyer will also be able to estimate the value of any legal claims you may have against the employer.
It would probably be fair to say you would not accept $4,000 in severance if your lawyer evaluates your legal claims to be $80,000, especially when you consider that a good portion of that money would not be taxable.
Consult with an employment lawyer before signing a release
Before signing any release, you should consult with a lawyer that practices employment law to help you evaluate your potential claims and to negotiate the best possible severance package for you.
Most employers will want you to give up all of your potential claims, including those that may be based on wrongful discharge or discrimination.
You should also consider that sometimes a release is drafted so broadly that it might even require you to give up claims you did not even know you had. For example, you later find out that you were really fired because of your age or because you filed a worker’s compensation claim. Both, if they can be proved, could have turned out to be very substantial legal
The amount of time you have to sign the release
As little time as the employer chooses to give you – with at least one exception: If the employer specifically wants you to release the company for discrimination, federal law requires the employer to provide you with 21 days to consider whether to sign the release and if you do sign the release, the law extends an additional seven days to change your mind.
