When Not to Sign a Severance Agreement

If you’ve been offered a severance agreement, chances are you’re dealing with a challenging situation. This is true whether it’s due to a layoff, company downsizing, or termination. Severance agreements can offer valuable financial support to employees who are about to be out of work. However, signing a severance agreement without fully understanding its terms can leave you vulnerable.

In some cases, it might be better to refuse to sign the agreement altogether. Knowing when not to sign is crucial, and consulting an attorney can help ensure your rights are protected.

What Is a Severance Agreement?

A severance agreement is a contract between an employer and an employee that outlines the terms of the employee’s departure from the company. Typically, the employer offers the employee a financial package. It might include continued pay for a certain period, extended health benefits, or a lump sum payment. It’s given in exchange for the employee’s agreement to specific conditions. These conditions might include waiving the right to sue the company, maintaining confidentiality about company matters, or agreeing not to work for competitors for a specified time (non-compete agreements).

Severance agreements can be beneficial because they provide immediate financial relief and help ease the transition to new employment. For many, accepting severance is a way to buy some time to find a new job without the pressure of an immediate financial burden.

When Severance Agreements Can Be Problematic

While severance agreements can offer much-needed support, they can also be used to manipulate or take advantage of employees. Employers may try to rush you into signing without giving you time to carefully review the terms or consult with an attorney. Signing too quickly, without fully understanding what you’re giving up, can have long-term consequences. Here are some situations in which you should think twice before signing a severance agreement:

Waiving Legal Rights

Most severance agreements require employees to waive the right to sue the company. If you believe that your termination was illegal—for example, if you were fired due to discrimination, retaliation, or in violation of public policy—signing the agreement could prevent you from pursuing legal action later. In such cases, speaking with an attorney to assess whether you have a valid claim could be critical before signing away your rights.

Non-Compete Clauses

Some severance agreements include non-compete clauses that prevent you from working for a competitor for a certain period. If the terms of the non-compete are too restrictive, they could limit your future employment opportunities, especially in your chosen field. It’s important to evaluate how the non-compete might affect your ability to find new work and whether it’s worth the severance package being offered.

Unclear or Unfair Financial Terms

The amount of severance pay should be proportional to your tenure and role within the company. If the financial offer seems low, especially after years of service, you may want to negotiate for a better deal or consider not signing. Sometimes, employers lowball the severance package, hoping employees will accept it out of fear or pressure. Always take the time to assess whether the financial terms are fair, and don’t hesitate to negotiate.

Confidentiality Agreements

Many severance agreements include confidentiality clauses. The prevent you from discussing your severance package, the terms of your departure, or any internal company matters. Consider being asked to keep quiet about potential wrongdoing such as harassment or unsafe work conditions a red flag. In some cases, these clauses are used to prevent employees from speaking out about illegal or unethical behavior within the company.

Rushed Decision-Making

Employers might pressure you to sign a severance agreement quickly. They’re hope is that you won’t have time to carefully review it or seek legal counsel. If you’re given an unreasonable amount of time to consider the offer, maybe within 24 hours, it’s a sign that you need to slow down. By law, employees over the age of 40 must be given at least 21 days to review a severance agreement. This is protected by the Older Workers Benefit Protection Act (OWBPA). If you’re being rushed, take a step back and demand the time you need.

When to Speak to an Attorney

If you’re unsure about the terms of your severance agreement or feel pressured to sign, speaking to an attorney is your best option. An employment lawyer can review the agreement, explain your rights, and help you negotiate better terms if necessary. Most importantly, they can help you determine whether signing the agreement is truly in your best interest. In some cases, you might have grounds for a legal claim against your employer.

For more information or to discuss your situation, contact Borelli & Associates, P.L.L.C.