My employer gave me a severance agreement. Should I sign it?

You should never sign a severance agreement without careful review and consideration, preferably with legal advice, because these agreements often contain provisions that can significantly impact your legal rights and future opportunities. While severance can provide valuable financial benefits during your transition, the terms of these agreements frequently favor employers and may waive important rights you didn’t realize you had. 

Severance agreements typically require you to waive your right to sue your employer for various legal claims including discrimination, harassment, retaliation, wage and hour violations, and wrongful termination. Understanding what you’re giving up is crucial because you may have valuable claims even if you’re not currently aware of them. California law provides extensive workplace protections, and violations are often subtle or discovered only after employment ends. 

The amount and terms of severance offered should be evaluated against the strength of any potential legal claims you might have. If your employer is offering a generous severance package, particularly one that exceeds their standard policy, this might indicate they’re concerned about potential liability. Conversely, a minimal severance offer might not be worth waiving significant legal rights. 

Time pressure is a common negotiation tactic, but you generally have the right to take reasonable time to review any severance agreement. Federal law requires employers to give employees over 40 years old at least 21 days to consider agreements waiving age discrimination claims, and 7 days to revoke after signing. Even for other types of agreements, you should insist on adequate time to review the terms and consult with an attorney. 

Pay careful attention to the scope of the release language. Broad releases may waive rights to all potential claims against your employer, while narrower releases might only waive specific types of claims. Some agreements attempt to waive rights that cannot legally be waived under California law, such as the right to file charges with government agencies or to receive workers’ compensation benefits. 

Non-disclosure and non-disparagement clauses are common in severance agreements and can significantly impact your future opportunities. These provisions may prevent you from discussing your employment experience with potential employers, industry contacts, or even family members. California has recently restricted the use of non-disclosure agreements in cases involving harassment, discrimination, or assault, but broader restrictions may still be enforceable. 

Non-compete and non-solicitation provisions should be scrutinized carefully. While broad non-compete agreements are generally unenforceable in California, employers sometimes include them anyway or structure them as non-solicitation agreements that might have some enforceability. These provisions could limit your ability to work for competitors or start your own business. 

The payment terms of severance should be clearly understood. Some agreements provide lump-sum payments, while others spread payments over time. Continued payments might be contingent on your compliance with agreement terms, meaning violations could result in forfeiture of future payments. Consider the tax implications of different payment structures. 

Benefits continuation is often negotiable and can be valuable. COBRA health insurance continuation is available regardless of severance agreements, but employers might agree to subsidize premiums or provide longer coverage periods. Other benefits like life insurance, retirement plan contributions, or outplacement services might also be available. 

Reference and recommendation provisions should be reviewed carefully. Some agreements specify what type of reference your employer will provide, while others might include “neutral reference” clauses that limit what can be said about your employment. Consider whether these provisions meet your needs for future job searches. 

Return of company property requirements are standard but should be reasonable. While you must return laptops, phones, and other company equipment, be cautious about overly broad provisions requiring return of all documents that might include your own work product or personal items commingled with business materials. 

If you have pending workers’ compensation claims, ensure the severance agreement doesn’t interfere with these rights. California law generally prohibits waivers of workers’ compensation benefits, but agreements sometimes include confusing language that could complicate your claims. 

Consider whether the severance agreement includes any admission of wrongdoing or acknowledgment that you violated company policies. These provisions could be problematic for future employment or professional licensing issues. You generally shouldn’t admit fault as part of a severance negotiation. 

Consulting with an employment attorney before signing can be valuable even if you ultimately decide to accept the severance offer. An attorney can identify problematic provisions, assess whether you have potential legal claims that might be worth more than the severance offered, and potentially negotiate better terms. 

Some employers are willing to negotiate severance terms, particularly if you raise specific concerns about the agreement. You might be able to improve the financial terms, narrow the scope of restrictions, or modify problematic provisions. Having legal representation often improves your negotiating position. 

If you decide not to sign the severance agreement, you won’t receive the offered benefits, but you’ll preserve all your legal rights. This might be the better choice if you have strong potential claims worth more than the severance offer or if the agreement restrictions would significantly harm your career prospects. 

Remember that severance is often offered when employers are concerned about potential legal liability. The fact that severance is offered doesn’t mean you don’t have valid legal claims; it might actually suggest the opposite. Taking time to properly evaluate your situation before signing can protect your interests and potentially lead to better outcomes.