Lately I have been reviewing and negotiating severance agreements for a variety of clients. I continue to be surprised that employers are offering severance pay in this economy. You wouldn’t think, with so many people being out of work, and companies closing down regularly, that an employer would want to pay hundreds, if not thousands, of dollars to an employee who is being fired or laid off from employment. But, I suppose it does makes sense when you consider that the main reason an employer offers severance pay is to obtain a broad release from the departing employee to prevent the employee from suing the employer.
For instance, the normal practice in a severance pay situation would be for the employer to notify an employee that s/he is being separated from employment and present the employee with a written severance agreement which describes the terms of the separation from employment. Typical terms in a severance agreement include, among other things, the amount of money the employee is being paid, health insurance continuation (usually under COBRA), and, of course, release language that states that in exchange for the severance pay, the employee is releasing any and all claims the employee has against the employer. Sometimes the agreement will include outplacement service to assist the employee in finding new employment and these terms are often very negotiable.
Thus, every employee being presented with a severance agreement must understand that once the severance agreement is signed by the employee, the employee has effectively released all of his or her claims against the employer. Potential claims against the employer can sometimes be used to negotiate a higher severance payment from the employer. But, in most cases, once that severance agreement is signed, a lawsuit can’t later be brought against the employer for issues related to the employee’s employment.
So remember not to just “take the money and run”. If you are offered a severance package by your employer, you should carefully consider the written terms of the agreement, evaluate any potential legal claims you may have against your employer, as well as have legal counsel review the agreement before you sign.