Negotiating a Severance Agreement

Why you should talk to a lawyer before you sign a severance agreement

A severance agreement is a contract between you and your employer that defines the rights and responsibilities of both parties when you leave your job. You might be asked to sign one when you’re hired, but more commonly, you’ll be presented with one when you leave.

On the one hand, it’s good to have one—because it stipulates what your employer owes you in terms of severance pay and extended benefits. On the other hand, your employer may demand things in return that can make your life difficult.

Before you sign a severance agreement, it’s crucial to have a lawyer look it over. Here’s why.

Things you might give up in a bad severance agreement

Here are a few things you might have to give up if you sign a severance agreement without knowing what’s in it.

Employer payments to your retirement account. Do you have a retirement account with employer-matching contributions? Are you vested? Many employers won’t let you keep that employer contribution unless you are—and that can take years on the job.

Check with a lawyer to make sure you know what will happen to your retirement account when you leave your job.

Insurance. Under the Consolidated Omnibus Budget Reconciliation Act (COBRA), you’re entitled to keep the group health insurance you had during your job for a period after you leave—usually about 18 months.

These plans are notorious for giving people sticker shock. Here’s why: You get the coverage based on the group price your employer negotiated—rather than the market value of the plan. But when you’re employed, your employer usually pays a percentage of your premium—sometimes as much as 82%–with the rest taken out of your paycheck.

But once you leave your job, you’re often responsible for the whole cost—minus any employer subsidies—plus a 2% service charge. That can be a big monthly payment.

Employers sometimes agree to help make COBRA payments for some time after an employee leaves—and if yours doesn’t, that’s a benefit you might be able to negotiate.

Be sure your employer is complying with state law regarding COBRA benefits—and you know what will happen to your coverage when you leave.

Stock options. Some employers will time their firing to keep you from being vested in your stock options—and if they do that, you may have recourse in court.

Your right to sue. Even the threat of a lawsuit can motivate your employer to offer you a better severance package—so it’s not a right you should give up lightly.

There are some cases where you may have a good reason to sue your employer. If any of these apply to you, it’s crucial to talk to a lawyer before you sign anything:

• If you’re pregnant or recently had a child.

• If you’re over 40, and most of the other people laid off with you are also over 40—or you have any reason to suspect age discrimination in your firing. See also: How Companies May Use Layoffs to Hide Age Discrimination.

• If you experienced sexual harassment on the job—or harassment based on factors such as race, religion, country of origin, disability, or marital status.

• If you recently reported illegal activity, discrimination, or harassment in the workplace.

• If you were fired or laid off after making a claim for workers’ compensation.

• If you’re of a different age, sex, race, age, marital status, or religion from others who weren’t fired for the same reason you were.

• If you recently took leave you were entitled to—for instance, to care for a sick family member, or to deal with your own illness or disability.

If you’re offered a severance package, talk to a lawyer before you sign it—ideally one who specializes in employment law. A knowledgeable lawyer can help you determine what you’re getting and what you’re giving up—and, if needed, help you negotiate for better terms.

Email us at murphy@phillyemploymentlawyer.com or call us at 267-273-1054 for a free, confidential consultation.