what you should look for in a severance agreement

What You Should Look for in a Severance Agreement

By Thomas McKinney

Finding out that you are being let go from your job can be devastating. Your mind may immediately rush ahead to whether or not you will be able to find another job and how you will make ends meet in the meantime. Despite how overwhelming this all can be, it can be critical to keep a cool head as you plan out your next steps. When an employee has been terminated by an employer, the employee may receive a severance agreement that can have a powerful impact on his or her rights. Take your time to review a severance agreement before signing as these agreements can often protect the employer, not you, the employee.

What to Look for in a Severance Agreement

In its most basic sense, a severance agreement is a legal document setting forth the financial terms on which an employee will leave the company of employment. You should take the time to review the agreement in full before signing. Be sure to pay particular attention to some of the following provisions which may be included in the agreement.

  • Non-compete clause: This type of clause places a limit on who you can work with after you leave your current company. It can include restrictions on where and when you can work as well. More often than not, such a clause is intended to prevent an employee from going to work for a competitor after leaving the company. Be wary of unduly restrictive or overbroad non-compete clauses. To be enforceable, they usually must be narrowly tailored in both geographic scope and timespan.
  • Non-solicitation clause: This type of clause is meant to restrict an employee’s ability to solicit the employer’s clients or employees after the employee has left the company. Once you have agreed to such a clause, you are prohibited from later recruiting former coworkers to follow you to your new company. Furthermore, you are prohibited from taking clients from your employer and bringing them with you to your new company.
  • Limits on the ability to file for unemployment benefits: Review your severance agreement for any references which may allude to you quitting your job or being fired for cause. Most states prohibit the receipt of unemployment benefits for those who lost their jobs under either of these circumstances. Be sure to take a close look to see if there is any language in the severance agreement that may state you are resigning or, alternatively, have had performance issues and are being terminated accordingly. You may very well want the ability to receive unemployment benefits while you are looking for other job opportunities.
  • Severance payment method: As part of your severance package, your employer may offer a severance payment. It is likely that you, like most, will want to take this as a lump sum payment as opposed to receiving it in installment payments. Installment payments put you at needless risk of your former employer stopping the payments due to something like you finding a new job. Furthermore, installment payments may interfere with your ability to receive unemployment benefits.

Employment Law Attorneys

For assistance navigating severance agreements and other important employment documents, talk to the dedicated employment law attorneys at Castronovo & McKinney. Contact us today.

About the Author
Tom McKinney is an experienced NJ Employment Lawyer in all major areas of labor and employment law, including discrimination, harassment, overtime violations, wage and hour claims, sexual harassment, wrongful discharge, Title VII, ADA, ADEA, FMLA, LAD, FLSA, and all other employment law claims. Tom is admitted to practice in the States of New Jersey and New York, United States District Court for the Eastern District of New York, Southern District of New York, District of New Jersey, and United States Court of Appeals for the Third Circuit. Prior to forming the firm, Tom practiced at Gibbons P.C. in Newark, NJ. If you have any questions regarding this article, contact Tom here today.