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The Warshawsky Law Firm Blog

Monday, December 21, 2015

Always Consult An Attorney Before Signing A Severance Agreement

The holidays is a festive time of year, full of family celebrations, gift giving, and ringing in the new year.  Unfortunately, it also is a time when many employees are laid off, as businesses look back at their performance over the past year and re-evaluate their budgets and staffing needs going forward.  (Another time when lay offs are common is near the end of the first quarter, before annual bonuses are paid out.)

The Warshawsky Law Firm receives numerous inquiries during the holiday period from laid off employees who want to learn about their legal rights or who have been given severance agreements that they need reviewed and explained.  Perhaps the two most frequent questions we are asked are:  Am I entitled to severance? and Is it possible to get more severance?

The answer to the first question is no, unless the employer has a formal policy of paying severance to laid off employees, or unless the employer has made a promise to the specific employee, in a written employment contract, to pay severance (which many high-level employees receive).

As a general matter, there is no entitlement to severance under federal, state, or city law.  However, some companies "promise" employees that they will receive severance if they are laid off.  This promise usually is found in an employee handbook.  If it is written in nondiscretionary, contractual language, then it may be legally enforceable (meaning, if the employer fails to pay the severance, the employee may be able to sue the company for breach of contract to obtain the severance).  Such a policy needs to be reviewed carefully with an attorney to determine if it is binding on the company and if the laid off employee otherwise qualifies for the severance.

The harder question is whether it is possible to get more severance.  Although each employee's situation must be evaluated individually, for most employees the answer will be no.  Companies that have written severance policies usually will not make exceptions to the "formula" used for calculating how much severance each employee receives (for example, one week pay for every year of service).  But sometimes it may be possible for an employee to make a personal appeal to the company for more severance based on length of service or excellent work performance or hardship or another relevant factor that touches on the "fairness" of the severance amount.  In these situations, the company is under no legal obligation to increase the amount of the severance payment, but it may be willing to do so to help out an especially valued or deserving employee.

Is it possible for an attorney to "write a letter" to the company to obtain more severance for the employee?  Yes and no.  Unless the attorney has a prior relationship with the company, an attorney's letter only will have influence if there are valid legal claims -- usually some kind of discrimination -- that the employee could assert against the company.  Evaluating these potential legal claims is the most important reason for consulting with a qualified employment lawyer before signing any severance agreement.

A severance agreement is a contract between the company and the employee in which the employee agrees to waive any claims he/she may have against the company in exchange for the severance payment.  This "bargain" is the heart of every severance agreement, although these agreements usually impose additional obligations on the employee, including not to disclose the severance agreement and not to disparage the company.  Even "straightforward" severance agreements are full of legalese that requires an attorney to review and explain.

Ultimately, the key question is whether the amount of severance that is being offered is "enough" -- in terms of whether it reasonably compensates the employee for the rights he/she is giving up and the obligations he/she is accepting under the agreement.

Frankly, for most employees, who do not have any viable legal claims against their companies, almost any amount of severance will be better than nothing.  But some employees will have viable legal claims -- which they may not know about until they consult with an attorney -- that may be "worth" more than the amount of severance that is being offered.  For these employees, accepting the severance may be a mistake.  The bottom line is that the decision whether or not to accept a severance agreement should not be made until the employee has consulted with a qualified employment lawyer.       

For more discussion about severance agreements, please see here

The Warshawsky Law Firm has reviewed severance agreements for employees at all levels and in a wide range of industries, including finance, technology, real estate, travel, fashion, publishing, media, entertainment, insurance, medicine, and law.  If you have been offered a severance agreement, please contact us today.





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