When an employer fires an employee, the company is often willing to enter into a severance agreement with the outgoing employee. There are numerous reasons a company may be willing to pay an employee severance. The employer may be grateful for the employee’s service to the company. More often than not, however, employers enter into severance agreements to prevent the employee from later filing a lawsuit against the company. It is highly advisable to have an attorney perform a severance agreement review to ensure your interests are fully protected.
Our Severance Review Process
Our severance package review has two parts. First, we review the employment and termination circumstances to determine if you have any potential legal claims or liability. We also review and analyze any prior employment agreements you signed, which may remain in effect even if you sign the severance agreement.
Second, once we have a full understanding of your particular employment situation, we meticulously go through the severance agreement with you section by section. The goal of the review is to ensure you understand what the agreement says in simple terms. We also advise you on how the terms will affect you going forward, including how it will affect your ability to find a new job. We are able to answer your questions at any point in the review to make sure you understand the severance agreement and its impact on you going forward.
At the conclusion of the agreement review, we will send you our proposed changes to the severance agreement. At that point, clients often ask us to negotiate the agreement directly with the company. Some clients prefer to handle the negotiations themselves. Other times, once clients have a complete understanding of the employment situation and agreement, they choose to either sign the agreement or not sign the agreement.
We offer flat fees to review agreements to make payment simple. The amount of the fee depends on the length and complexity of the agreements that need to be reviewed. We often continue to represent individuals after we have reviewed their severance agreement. For example, clients often ask us to negotiate the severance agreement directly with the company. Once the severance review is completed, any fee (hourly, fixed, contingency) for future representation will depend on the type of representation you seek from us.
We understand that contract reviews are often time sensitive. We build time in our schedule for last-minute contract reviews, and will review agreements within 48 hours. All agreement reviews are conducted by Attorney Quinton Osborne.
Important Severance Review Considerations
Before you sign a severance agreement, it is highly advisable to have an attorney thoroughly review the agreement to ensure it furthers all of the employee’s interests. Below are some of the issues that we commonly see in reviewing severance packages.
Severance Amount
The severance agreement will state the amount of the severance payment. Do not consider the employer’s severance agreement a final offer. An employee can present a counter-offer to the employer, which can include a higher severance payment. A higher severance amount may be justified based on your particular circumstances, such as your job performance and/or potential legal claims. While a company might deny your request for higher severance, it is extremely unlikely an employer would take their initial offer off the table.
The severance agreement should also contain terms that make clear when the amount must be paid (such as within thirty days of a certain event). The severance can be paid in a lump sum or over a period of time. It is typically preferable for the severance to be paid out in a lump sum, but it depends on the employee’s specific situation.
Release of Legal Claims
Severance agreements almost always require the executive to waive ALL legal claims he or she may have against the company. These claims may include wrongful termination, discrimination, retaliation, unpaid wages, breach of contract, or other employment violations. However, without assistance of counsel, an employee may vastly undervalue their severance payment due to not understanding all potential claims against the company.
Extended Health Insurance Benefits
When an employee loses their job, they typically lose health insurance coverage by the end of the termination month. Employees can elect to receive continued health insurance through COBRA (Continuation of Health Coverage). However, electing COBRA is very expensive. During employment, the employer pays a portion of your health insurance premiums, and the employee pays a portion. However, to receive COBRA, the employee must pay BOTH the employer’s and employee’s portions of the health insurance premium. In addition, employers can charge employees an administrative fee up to 2%. An employment attorney can suggest terms to address the potential loss of health insurance.
Unemployment Considerations
The decision to grant or deny you unemployment benefits is solely the decision of the Illinois Department of Employment Security’s (IDES). However, severance agreement terms can either make it easier or more difficult for an employee to receive unemployment benefits while searching for a new job. At the very least, the employer can agree to not contesting the employee’s claim for unemployment benefits, which will make it easier for the employee to obtain benefits.
Restrictions after you sign the agreement
Many severance agreements also contain binding provisions that not only prevent the employee from suing the company for past wrongs, but also control the employee’s future conduct. For instance, some agreements contain confidentiality provisions, non-disparagement clauses, and covenants not-to-compete. These provisions, often ignored, may hurt the employee more than any severance payment will help.
Contact an Attorney to Perform a Severance Agreement Review
Illinois Labor and Employment Attorney
At Osborne Employment Law, we have experience reviewing and successfully negotiating hundreds of severance agreements on behalf of our clients. Call now or fill out the below form if you are seeking a severance agreement review.
Severance Agreement Frequently Asked Questions
Clients often ask me what is the “normal” or “standard” offer of severance. Some companies offer a set number of weeks (for example, 2 or 4 weeks) for each year of service. Other companies make severance determinations on a case-by-case basis, possibility taking into account years of service, the employee’s job performance, and the circumstances of the employee’s termination. Two different companies could make vastly different severance offers with the same facts and circumstances. Even with the same facts, one employer may offer a very generous severance agreement, while another might not offer any severance agreement whatsoever.
Therefore, it is often not helpful to compare your severance agreement to what another company “might” offer you. Rather, an experienced employment attorney should evaluate your case on an individual basis, taking into account the circumstances of the employment termination, other applicable agreements, potential legal claims, and the situation as a whole.
Employers typically are not required to offer employees a severance agreement. There are exceptions to this general rule. For example, some employment contracts guarantee an employee or executive an amount of severance pay if certain conditions are met. In addition, some companies have established Severance Plans, which provide employees a right to severance pay under the Plan. However, the vast majority of time, Companies are not legally required to offer employees a severance agreement.
Rather, employers typically offer severance agreements to employees for a myriad of reasons, oftentimes upon advice of the company’s attorneys. The employer may want to bind the employee to certain legal conditions going forward, such as a release of legal claims. The company may be appreciative of the worker’s service. The company may be concerned about the employee badmouthing the company, so they want the employee to be subject to a confidentiality or non-disparagement clause. Sometimes an employer wants a clean break with an employee, and will offer a severance agreement to do this.
Prospective clients often ask me whether it is worth their money to have an attorney review their severance agreement. Keep in mind that the employer’s law firm or in-house counsel likely drafted the severance agreement. When the company drafted the agreement, it was not to protect the interests of the departing employee. Rather, that agreement, and all essential terms contained in the agreement, were drafted in the best interests of the company. Moreover, the company likely consulted with attorneys in deciding the severance amount that would be paid to the employee. Thus, if the company’s attorneys are looking out for the best interests of the Company, then who is looking after the employee’s best interests?
I always advise potential clients to have an experienced labor attorney review their severance agreements. A severance agreement can prohibit an employee from suing their employer (even if the claims are very good), can make it more difficult (sometimes impossible) for an employee to find a new job, and can result in future potential liability for the employee, among other implications. Given the stakes, it is always a good idea to have an attorney review a severance agreement in your particular situation.
If you already signed your severance agreement, speak with an employment attorney immediately to evaluate your options. For example, some laws, such as the Age Discrimination in Employment Act (ADEA) and the Illinois Workplace Transparency Act, allow an employee to revoke their agreement within seven calendar days of signature. Moreover, even if the agreement is binding, some claims cannot be legally waived in a severance agreement. Therefore, if you are second guessing signing a severance agreement, it is still worth speaking with an Illinois employment attorney.
Yes – a severance agreement is merely a contract offer. You can either accept it, decline it, or issue a counter-offer. You can handle the negotiations on your own, or an employment attorney can handle the severance negotiations on your behalf. An attorney can evaluate your situation, increase your leverage, and prevent you from having additional uncomfortable and potentially unhelpful communications with your former employer.
There are many reasons for an executive to decline an offer of severance. For example, if the employee’s potential legal claims are more valuable than the severance offer, the employee is better of not signing the agreement. Sometimes employees should not sign severance agreements based on overly-restrictive terms.
Even if an employee does not sign the severance agreement, they are still entitled to all wages through the last date of employment. In addition, the employee is entitled to all earned but unused vacation time. Keep in mind that although you may not be subject to the terms of the severance agreement, you may still be subject to the terms of previously signed contracts with the company. This may include an employment agreement, confidentiality agreement, restrictive covenant agreement (such as a non-compete or non-solicitation agreement), or loan repayment agreement.