Most people think that severance agreements are pretty simple – that their (former) employer is giving them money to go away peacefully after termination of employment. But this oversimplified thinking can have real consequences. Your severance agreement contains provisions that can limit your rights and opportunities in the future. These provisions not only limit your right to sue your former employer but also to collect unemployment, control how your references are handled, who you can work for, and which clients you can service. Below are the four most important sections of a severance agreement that should be reviewed by an employment attorney.
- Consideration. Basically, this is what you are receiving in exchange for signing your severance agreement. Your former employer is asking you to waive potentially valuable rights. You need to know if you are getting a fair deal. This includes not only monetary compensation but also stock, benefits, etc.
- Unemployment. Depending on where you live, the timing and nature of your severance payment may impact your entitlement to unemployment benefits.
- References & Non-Disparagement. If called, what will your former employer say about you, your work, or why your employment was terminated? Oftentimes, severance agreements address this.
- Restrictive Covenants. Some employers include non-competes, non-solicits, or non-disclosures in severance agreements. Others waive some of these restrictions. You need to know what will and will not be a potential problem in the future.
Before you sign, you should consult with an employment lawyer who specializes in severance agreements.