Severance as the name suggests means an ending. A severance package may be offered when an employee is required to leave his or her job for any reason, recession, lack of work, etc. A severance package however is not automatically offered or required; in fact, except for limited circumstances, it is up to the company, and some companies don’t offer such packages at all. Some exceptions include when you have an employment agreement requiring payment of severance or if the company has a policy or practice of providing severance. This policy could be unwritten but it may be difficult to prove. Let’s take a look at why severance packages are offered and why you should have an attorney review one before you sign it (some agreements will even state that the Company advises you to seek legal counsel regarding its terms).
A severance package is supposed to ease the financial hardship meant to be faced while finding a new job and it may include pay while you are unemployed. Further it may include other benefits, such as reimbursement of your COBRA expenses for continuation of health insurance and continuation of other employee benefits (e.g., use of the company car, etc.). Severance pay is not free. In return, the employee agrees, among other things, not to file a lawsuit against the company (and its officers, directors, etc.)
Recipients of a severance contract should take great care before signing a severance agreement; meeting with an experienced employment law attorney can help you determine if you have any valid claims against the Company and the strength of pursuing those claims in lieu of signing the agreement. For example, an important question is determining whether you have any legal claims against the Company that could be worth more than the amount of severance offered. The severance review period is the time to consider these issues because, in general, once you sign a severance agreement, you cannot pursue a claim for monetary benefit. Of course, this depends on the terms of your agreement and the circumstances. This blog post contains general information. A waiver of claims is not the only thing typically demanded in a severance agreement. Many employers include clauses such as confidentiality, non-disparagement, and non-solicitation – sometimes, these provisions be overbroad or unreasonable. The non-economic terms can be as important as the amount of severance pay because they can impact your ability to secure new employment. Our Award-Winning NY Severance Agreement Attorney has represented individuals and companies in separation issues and has discussed the topic of severance agreements in the past.
One key takeaway to understand is that you should know what you are entitled to upon separation absent signing a severance agreement and what you would be receiving in addition for your execution. For example, if an employee is terminated, he or she is generally entitled to receive: (i) pay up and until the last day worked; and (ii) payment for your accrued but unused vacation time (unless the Company has a contrary written policy); and (iii) a statement of when your health insurance coverage, if applicable, will terminate – some plans’ coverages will end on the last day of your employment and others will continue coverage until the end of the calendar month – this is a fact specific issue — you should discuss this with your former employer if you are not certain. The severance agreement should include a term called severance pay (or similar phrase), which represents the consideration provided by the Company in exchange for your promises contained in the agreement. The amount of consideration depends on your circumstances. While some companies use a formula, other companies do not. Regardless of the amount of severance or the terms therein, in general, a former employee in New York cannot waive his or her right to file for unemployment insurance benefits or workers compensation benefits. That being said, a severance agreement can have an impact your ability to collect unemployment insurance benefits. The New York State Department of Labor has created a fact sheet on the interplay and it can be found here. There are other things a former employee cannot waive as well including but not limited to filing a complaint with the EEOC. Severance pay issues can be difficult and delicate. Counsel from the outset can be valuable. If you have received a severance agreement and have any questions or concerns, contact our office for a confidential consultation to learn your rights.
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