When an employee is terminated from their job, they may be presented with a severance agreement. This agreement typically includes a compensation package in exchange for the employee waiving their right to sue the employer. 

While it may seem like a straightforward process, it’s important to understand the terms of the agreement before signing. Failure to do so could have significant implications for your future employment opportunities and legal rights. We’ll explore what to consider before signing a severance agreement and potential pitfalls to look out for.

Severance Package Overview

A typical severance package may include a lump sum payment or payments spread out over a period of weeks. Typical severance packages offer one to two weeks of paid salary for every year worked. The number of weeks can vary depending on the employer and the circumstances of the termination.

In addition to payments, a severance package may include continuation of benefits such as health insurance, retirement plans, and other perks. The length of time that these benefits will be available may vary, so it’s important to review the terms of the package carefully.

Outplacement services may also be included in a severance package. These services can include resume writing assistance, reverse recruiting, and career coaching and development.

It’s important to note that severance agreements may also include additional items such as non-compete clauses and confidentiality agreements. Review all details of the severance package carefully to understand how the payout will be structured and any conditions that may apply. This can help you make an informed decision about whether to accept the package or negotiate for better terms.

Considerations Before Signing

Before signing a severance agreement, there are several considerations to keep in mind. By taking these steps, you can ensure that you fully understand the agreement and make the best decision for yourself. 

Before signing a severance agreement, take these steps:

  1. Review the language and terms of the agreement: It’s important to read the agreement carefully and make sure you understand all of the terms. If there is anything you don’t understand, ask for clarification or seek legal advice.
  2. Understand the impact on future employment opportunities: Some severance agreements include non-compete clauses or other restrictions that could limit your ability to find work in your field. Make sure you understand any such restrictions and how they may affect your future job prospects.
  3. Consult with an attorney or legal advisor: It’s a good idea to have an attorney review the agreement before signing if you are not comfortable with it. They can help you understand the legal implications of the agreement and identify any potential issues.
  4. Negotiate terms if necessary: If there are terms of the agreement that you’re not comfortable with, you may be able to negotiate better terms. For example, you may be able to negotiate for a larger payout or the removal of a non-compete clause.

Potential Pitfalls to Look Out For

When reviewing a severance agreement, it’s important to be aware of potential pitfalls that could have long-term implications. Make sure you understand the terms of any non-compete clause and how it may affect your future job prospects.

Here are some common pitfalls to look for in a severance agreement:

  1. Non-compete clauses: Some severance agreements include non-compete clauses that can limit your ability to work in your field for a certain period of time. Understand the terms of any non-compete clause and how it may affect your future job prospects.
  2. Confidentiality agreements: Some agreements may include confidentiality agreements that prevent you from discussing the terms of your severance package with others. Understand the scope of any confidentiality agreement and how it may affect your ability to discuss your employment history in the future and your ability to negotiate future job offers.
  3. Waivers of legal rights: Some agreements may include waivers of legal rights, such as the right to file a discrimination or harassment claim against the employer. Understand the implications of any such waivers and how they may affect your legal rights in the future.
  4. Tax implications: Depending on the structure of the severance package (lump sum vs. payments), there may be tax implications that you need to be aware of. Understand how any payments or benefits will be taxed and whether there are any deductions that will be taken out.
  5. Clawback provisions: Some agreements may include clawback provisions that allow the employer to reclaim the severance payment if certain conditions are not met. Understand the terms of any clawback provision and how it may affect your ability to keep the payment.
  6. Impact on unemployment benefits: Depending on the state, accepting a severance package may impact your ability to collect unemployment benefits. Understand how the severance package may affect your eligibility for unemployment benefits.
  7. Impact on retirement benefits: If you have a retirement plan with your employer, accepting a severance package could impact your eligibility for certain retirement benefits. Understand how the severance package may affect your retirement benefits.

Key Takeaways

When presented with a severance agreement, it’s important to carefully review and consider all of the terms before signing. This includes understanding the compensation package, continuation of benefits, and any outplacement services that may be included. It’s also important to keep in mind potential pitfalls such as non-compete clauses, confidentiality agreements, waivers of legal rights, tax implications, clawback provisions, and impacts on unemployment and retirement benefits. 

Consulting with an attorney or legal advisor can help ensure that you fully understand the agreement and make the best decision for yourself. By taking these steps, you can protect your future job prospects, legal rights, and financial well-being.

If you are back on the job market and need some assistance with your job search, Find My Profession offers reverse recruiting and professional resume writing services to help you get back to work quickly. Our services are designed to support job seekers and are also available as an employer-sponsored outplacement benefit. Contact us today to learn more about our services and how we can support you in your job search.