The Truth Behind Severance Agreements

Being let go of your job is never easy. You might be wondering what happens next, how you’ll find another job, and where you should go from here.

While all this is happening, your company’s HR department might offer you the possibility of a severance package. They could ask you to sign it right away—they might even tell you that it’s a standard agreement.

Here’s the thing. That’s simply not true.

There’s no such thing as a “standard” severance agreement, and if your employer wants you to sign on, there is almost certainly more to the story. Read on to learn the truth behind severance agreements and what your former employer really wants from you when they offer severance pay.

Employers Aren’t Obligated to Give You Severance

This is key to remember. According to the U.S. Department of Labor, employers have no legal requirement to offer a former employee severance pay. Most states are considered at-will employment states; therefore employees may be terminated at any time and without notice.

Yet even at-will employment states do not allow an employer to terminate you based on race, sex, religion, disability, or veteran status. This would be considered wrongful termination, and you could take legal action against your employer if you have reason to believe this influenced their firing decision. Things may vary if you are a remote employee, but the basis of wrongful termination generally stays the same. 

All these issues raise the question of why employers might offer you a package with severance pay—and the answer may surprise you.

Severance Pay Ultimately Benefits Your Employer

How could paying you benefit them?

If you’ve experienced unpleasant realities during your time at the company—such as discrimination, harassment, or wrongful termination—this severance package might be the way your employer buys your silence.

Some severance packages include clauses that prevent the employee from taking future legal action against their employer—even if they were fired for illegal and discriminatory reasons. This directly benefits your employer and ensures that they will not get sued.

Your HR department will never phrase it like this, but they could be asking you to sign your rights away in exchange for some money.

Read Your Agreement Carefully

No matter what your HR department says, even if you’ve been told their severance package is “standard,” always read the fine print.

You might discover terms and clauses you weren’t aware of. You might even find areas where you can ask for more—you have a legal right to negotiate the terms of your severance agreement. 

Whether you intend to do it yourself or find a lawyer who can communicate on your behalf, that’s up to you. This is an opportunity to get creative and make the best of an unfortunate situation.

You Can Negotiate

If your employer wants you to sign a severance agreement that benefits them, it’s only fair that you receive some benefit, too. This is where you negotiate for an agreement that keeps your best interests in mind.

You can ask your employer for more severance pay and even negotiate how that sum will be paid out to you, such as in a lump sum or in installments.

You can negotiate for the continuation of healthcare benefits for you and your family. There is also the possibility of continuing the perks you had at the company while employed. If you seek legal counsel, you might even be able to recover the costs.

If you don’t ask, you can never receive. You have more power than you think.

Throw Out Any Non-Compete Clauses

One clause that an employer might slip into a severance agreement is a non-compete clause.

A non-compete clause may differ from agreement to agreement, but it often means that you cannot work with a competitor company, for a certain period of time, or in a certain geographic area. This ensures that you can’t use your skills to directly compete with your former employer.

You don’t have time to wait around for a non-compete clause to expire. Also, with WFH making many industries global, your employer could set the geographic parameters in a non-compete far too wide. 

Remember, you have the right to negotiate the terms in a severance package. That includes throwing out any clauses you don’t want.

Don’t Sign Yet

You are entitled to take your time before you sign a severance agreement. Even if your employer gives you a deadline, don’t panic. The time may vary, but you do have the benefit of a considerable period.

If you’re under the age of 40, you’re given what is called a reasonable consideration period. The specific amount of time depends on your former employer and the terms that are outlined in the agreement. 

If you’re over the age of 40, you have more flexibility. Employees over 40 are given 21 days to review and sign an agreement, with 7 days to revoke their signature.

Even if you’re pressured to sign quickly, make sure that you’re able to slow down and make full use of your consideration period.

We hope you keep these points in mind if you’re ever faced with a severance agreement. The most important thing to know is that you have power in this situation, and you’re able to modify your severance package to benefit you, as well.

While we know losing a job is a difficult time in anyone’s life, we believe in seeing opportunities in unlikely places. This could be your sign to start your own business and begin the path to entrepreneurship.