What Red Flags Should I Look for in a Severance Agreement?

Losing your job is never easy, but a good severance agreement can take the sting out of it. Severance can give you a financial cushion and buy you time to find new employment. But an overly broad or otherwise problematic severance agreement can cause much more trouble than it’s worth.

Here are some red flags that we commonly see in severance agreements at Gibson Law, LLC. To be absolutely clear: this is general information, not legal advice. Only your attorney can review the specific terms of your potential severance agreement and advise you whether it’s in your interest to sign it. If you are considering a severance agreement with your employer, we strongly encourage you to contact us right away for specific advice on your individual situation.

Overly broad non-compete provisions

Many separation agreements include a non-compete clause; that is, an agreement not to work for a competitor for a specific period of time. This may not be a huge problem if you’re getting good severance pay in exchange and you can still get a good job without violating the non-compete. However, signing a non-compete can be financially devastating if it prevents you from getting a new job. Not only do you lose income in the short term, but you may lose progress and seniority in your career that can have a massive effect on your long-term earning potential.

What you may not know is that courts closely scrutinize non-compete clauses; they’re not illegal, but they have to be narrow enough to be reasonable. An overly broad non-compete clause, such as one that covers a large geographic area or uses a particularly liberal definition of “competitor,” may be legally unenforceable.

Non-disclosure and non-disparagement agreements

As with non-competes, employers may have legitimate reasons to put non-disparagement or non-disclosure clauses in their separation agreements. A non-disclosure might be needed to protect trade secrets, for example. But, again, these clauses need to be written narrowly to protect the employer’s interests without unreasonably restricting the employee. An attorney can explain whether a non-disparagement or non-disclosure is likely to survive legal scrutiny.

Overly broad promises not to sue

This is one of the biggest reasons employers pay severance in the first place: to avoid the possibility of legal action by a disgruntled former employee. It’s typical for employers to include language prohibiting the employee from taking legal action as part of a severance agreement. This may include both taking action in state or federal court and filing charges with government agencies such as the EEOC or OSHA.

There are legitimate reasons why it might be in your interest to accept such a condition in exchange for a good severance package, but again, you need to discuss it with your lawyer first. In part, that’s because there’s no way to know whether you have a viable claim without speaking to an attorney — and you don’t want to sign away rights before you understand them. If you do have a viable case, you may be able to use that as leverage to negotiate additional severance, or reject the severance agreement and take your employer to court instead.

Talk to our attorneys about your legal rights and options

A severance agreement is a legally binding contract that can have significant implications for your future. That’s why it’s so important to get legal advice before you sign. Give us a call or contact us online for a free case evaluation with an experienced employment law attorney.

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