Ending a job, voluntarily or involuntarily, may include stress and important decisions. Many times, employers ask departing employees to sign separation or severance agreements. Before signing, an employee should consider several matters.
A severance agreement is a contract between an employer and employee that governs their departure. Usually, the employer agrees to pay additional compensation or severance pay in return for the employee's assurance not to do anything that harms the employer, such as suing for wrongful termination or back pay or making derogatory statements about the employer. The law does not require severance pay for resignation, layoff, firing or any termination, even for a long-term employee.
Severance pay is usually calculated on a formula that incorporates the employee's length of service. Employees may try to negotiate for additional pay based on the length of their employment, their record and any benefits they provided to the employer's business. Payment of severance as a lump sum, over a time period or periodically may also be negotiated.
Several other considerations govern whether a severance agreement or other release should be entered. At the time of job termination, employers must pay all earned wages, overtime, unused vacation time and any earned benefits without requiring a release or severance agreement.
Additionally, a severance agreement may be a method for an employer to prevent an employee from seeking this compensation and asserting their rights to legal relief for wrongful conduct. This conduct may include wrongful termination, discrimination, sexual harassment or failure to provide adequate meal and rest periods. The employer's desire to avoid a lawsuit or other action may strengthen an employee's negotiating position.
Before signing a severance agreement, an employee should seek legal advice. An attorney can help review agreements, assist with negotiations and pursue legal relief for any wrongful conduct.