Severance agreements are contracts. Employee Choice Doctrine applies.

Consistent with “at will” employment, employees may either accept the offered terms or walk away from them.

Employers often insist that both sides agree on the following terms:

  1. The employer did nothing wrong.
  2. The transaction is voluntary and not being forced on either side.
  3. The employee agrees that a final payment covers any and all monies the employee may be owed.
  4. The employee is responsible for paying income taxes on payments classified as wages.
  5. Non-wage income, if liquidated damages apply, may be per IRS Form 1099.
  6. There are no Medicaid or Medicare liens obligating the employee.
  7. The settlement payment, no matter its size, is sufficient.
  8. The employer admits no liability.
  9. Numerous specific federal employment law rights and New York Labor Law rights are listed as voluntarily waived by the employee.
  10. The employee affirms that she/he has been paid all wages.
  11. The employee affirms that she/he has no work-related injuries, conditions, or claims.
  12. The employee agrees to keep the negotiation and terms of settlement confidential.
  13. The employee may still participate in federal or state government investigations but will never receive additional compensation for doing so regardless of any subsequent findings or conclusions even if the employee was not aware of wrongdoing when agreeing to settle.
  14. Any other agreements or promises are almost always rolled into the final settlement agreement and general release.
  15. Often times an employee will agree to never work for this employer again in the future.
  16. Employees may agree to broad non-compete provisions in exchange for a substantial severance payment.

Sometimes the severance amount is not enough. The non-compete may be unreasonable.

Barring an internal medicine physician from competing within a 100 mile radius of the former employer is usually unreasonable. However, Employee Choice Doctrine allows the physician to agree in exchange for adequate consideration, which can be almost any amount of money.

This analysis differs for employees who quit, resign, or are fired without cause. A court might reduce the radius of non-competition below 100 miles, depending on the market, and enforce the non-compete.

With severance agreements I pay special attention to 3 things.

  • Who is the employer? Will they likely pay? Employees are often surprised to learn that some employers don’t care and don’t pay.
  • Clever employers might offer an employee an independent contractor agreement in lieu of a severance agreement. An unsuspecting employee might accept only to discover they have no contract at all. Few employers are able to convert employees to independent contractors lawfully. What matters most is the employee’s control and discretion rather than their belief or job title. How much control, discretion and independent judgment does the employee have? Independents tend to have quite a bit.
  • If something goes wrong, how will the contract or agreement be enforced? In what forum will enforcement occur, who will pay, and when?

There is a lot more to reviewing an 8, 10, or 12 page severance agreement than most employees anticipate. It’s not uncommon for an employee to have restrictive covenants with a prior employer while concurrently being concerned with covenants which a prospective employer is proposing. For example all of the following may apply to each:

  • Non-solicitation agreements
  • Trade secrets – duties of loyalty to all employers
  • Work product and the employer’s right to own it
  • Client or customer lists which might be transferred to a new employer
  • Special or extraordinary services
  • Non-compete clauses
  • The Defend Trade Secrets Act
  • Alternative Dispute Resolution
  • Choice of Law other than the state in which work is performed

Timing is everything. The sooner employees call severance or employment lawyers the better.

Sometimes severance agreement reviews lead to potential discrimination charges but not frequently. Sometimes employees recover more money. Often times employees protect their immediate unemployment benefits by having a severance lawyer review and propose improved language within agreements.

The best thing employees can do is to call and speak with many severance or employment lawyers.

Read some of my blog articles if they interest you and you will see why employment law is nothing like personal injury or any other type of law. Facts matter and they are often extensive and involved. Never sign a legal document without having a lawyer review it thoroughly and discuss it with them.

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