executive severance agreements

Why You Should Never Sign a Severance Agreement Right Away

It has to be tempting to sign a severance agreement right away.  You were just terminated, you are probably wondering about how you are going to pay bills, make ends meet, find your next job, etc.  The severance you’ve been offered seems like a lifeline.  Maybe it is...

But You Should Never Sign a Severance Agreement Right Away.

Your severance agreement was written specifically to help your employer – not you.  Thus, your severance agreement makes you give up nearly every right you have under federal, state and city law, like claims for discrimination, breach of contract, defamation, unlawful termination, human rights violations, and certain wage payment laws.  The agreement may also prevent you from working for a similar employer, from contacting your former co-workers or clients, and making certain statements about the company.

Your employer also drafted the severance agreement to protect itself in the event that you breach.  For example, your agreement probably permits your employer to seek “injunctive relief” or to seek attorney’s fees in the event of a breach of the agreement (but does not permit you to seek attorney’s fees if the company breaches).

Your employer also drafted the severance agreement with an offer of payment.  That offer may not properly value the claims you are giving up, your contribution to the company, or your personal circumstances.  When I used to advise companies about how to draft severance agreements, I would always give them the following advice:

“You should offer the minimum amount that this person would accept to shut up and go away forever.”

Still Think You Should Sign Right Away?

Why not speak to a severance lawyer?  Granovsky & Sundaresh specializes in severance agreements.  We offer two services in this regard.  First, we can review your agreement with you paragraph-by-paragraph to make sure that, at a minimum, you are an educated consumer.  For some clients, however, we also negotiate severance.

Our Pricing For These Services is 100% Transparent:

  • For review and consultation, we charge a flat fee - $600.  This fee includes a complete review of your agreement, assistance with revising the agreement if necessary, and a bank of time for issues that arise in the future (e.g., if a non-compete issue comes up in the future, we will consult with you on this as well).
  • For negotiation of severance agreements, we charge a contingency fee of 1/3 of the monetary improvement we attain for you.  There is no fee unless we improve your severance.

Yes, You May be Able to Improve Your Severance

We specialize in negotiating severance agreements.  We have improved our clients’ severance agreements in 91% of our cases (as of April 1, 2017).

You owe it to yourself and to your career to understand and improve your situation. 

Contact us today.  Call 646-524-6001. You will be speaking to an specialized severance attorney within 24 hours.

Checklist for Negotiating Severance Agreements

Our firm specializes in negotiating severance agreements for recently terminated employees.  We’ve negotiated severance agreements all over the country from our offices in New York City and Cleveland.  Since we formed our firm, we have improved severance for over 93% of our clients.  You can read our reviews on Google, Avvo, and Yelp.

When we talk to our clients about severance, we generally go through the below checklist.  We don’t always discuss every bullet point with every person, but this should provide a general overview. 

·         Is it Fair?  Here’s the basic transaction:  in exchange for severance (money) the company is getting you to promise not to sue them (and sometimes a bit more).  Are you getting fair value for your promise?  That depends on what your promise is worth – in dollars and cents.  It also depends on common sense.  How much did you give your company in blood, sweat and tears?  Is that being valued (it does not have to be – but it should)?   We work with clients to help them better understand if their offer is fair and help them work towards a more equitable deal whenever possible.

·         Reason for Termination.  This is a big one.  If you believe that the company terminated your employment for an illegal reason (e.g. discrimination, retaliation, etc.), the claims that the company is asking you to release can be quite valuable.

·         Potential Claims.  Like your reason for termination, if your employer violated the law, you have viable claims against the country.  We discuss whether each employee was properly compensated for all time worked, and also explore whether the employee has viable claims under OSHA or Dodd-Frank.

·         Confidentiality.  Map out what is and what is not confidential.  While a company certainly wants to keep its trade secrets (and secrets generally) private, you need to be free to describe your work to potential employers, etc.  Plus there may be certain aspects about your employment that you want to be kept confidential.

·         References.  Severance is about your future, so working out how your references are going to be handled is critical.  A neutral reference usually covers this, but, sometimes, you can iron out a reference letter from your former employer which you can then present to potential employers.  These are fairly rare, but that does not mean you should not look into it in certain circumstances.  Here is an article on neutral references.

·         Personnel File.  You may want an opportunity to review and/or copy your personnel file for your records.  A personnel file would typically contain information about your pay, benefits, and performance.  Even if you cannot get access to your entire file, there may be some information about your employment (salary, benefits, accrued vacation, etc.) that you may want to know.  Think through what information you want.

·         Return/Retention of Company Property.  Most severance agreements require employees to return all company property.  But what if you’ve grown attached to your company-issued laptop or smartphone?  Do you have important personal information on your work e-mail account?  Think through what you might want to keep.

·         Restrictive Covenants.  As noted above, severance is about your future.  Restrictive covenants (non-competes, non-solicits, etc.) can have a major impact on what you are allowed to do after your employment has ended.  If you are subject to a restrictive covenant, your severance agreement may be a good place to revisit the issue.  But you have to be delicate when you address this issue – nothing says “I intend to compete with the company” quite like saying “I want to talk about my non-compete agreement.”

·         Other Pay.  Don’t leave any money on the table.  Make sure all of your earned wages, commissions, vacations, sick leave, etc. have been paid.  Figure out your pension, 401K and benefits.  Make sure that you get everything that you’ve earned.

·         Stock Options.   When are your stock options exerciseable?  Separation from the company may accelerate the time.   Also, if you have acquired stock, majority shareholders may owe you a fiduciary duty to disclose material info about the company stock. You may be able to force the company to repurchase the stock.

·         Future Relations.  Can the company hire you back?  Can you be a consultant, or independent contractor for the company?  Does getting another job (with the company or another company) impact your severance? 

·         Taxes.  Talk to an Accountant.  Figure out how your severance is going to be taxed.    Typically, severance payments are taxed as wages, but not always.  Clever accountants are great at coming up with creative solutions to tax issues related to severance.

If you think you might want to talk to a lawyer about negotiating your severance, please contact us – this is what we do.

Severance and References

Typically, severance agreements handle employee references one of three ways.  Sometimes the agreement is silent on the topic of references altogether.  Commonly, severance agreements contain a “neutral reference” clause.  And rarely, they include a letter of reference.

What should I do if my severance agreement has no provision regarding a reference?  And what is a neutral reference anyway?

If your severance agreement has no language regarding how references to a future employer are handled, you should find out what – if any – company policies exist.  An increasing number of companies have strict policies stating that the only information they will provide is a neutral reference.  

A neutral reference is simply a statement regarding the positions you held and your tenure at the company.   Some large companies may use third party companies to provide neutral reference information for them.  So if your company has a neutral reference policy, you can relax and know that this how any potential reference inquiries will be addressed by your former employer.

If your company does not have a neutral reference policy, consider asking your employer to change the severance agreement to include a neutral reference clause.  Typically, employers are willing to do this because:  (1) a neutral reference does not cost the company any money and (2) they are only being asked to provide truthful information about your tenure and positions held.

Neutral Reference?  Doesn’t That Make Me Sound Bad?

A lot of people are afraid that a neutral reference will make them sound bad.  While we understand why someone might be concerned about this, it is often not worth worrying about.  First of all, so many companies have neutral reference policies, that these have become pretty standard.  Nobody reads into these any more.

Second, the purpose of a neutral reference is for a potential employer to verify your employment history (i.e. confirm that you are not lying on your resume).   Many companies hire third party background check companies who simply check your resume – a neutral reference is perfect for this.

Can Someone Say that I was Great?

Yes!  But that is on you. 

Talk to your former co-workers, supervisors, etc. and ask if they would be willing to sing your praises.  Obviously, this depends on your personal relationships, but that is outside the scope of your severance agreement.  When you are on the job hunt, reach out to your former colleagues, and ask them, “Hey, I am applying for a job at NewCo.  Would you mind if I listed you as a reference?” 

This is based on your relationships with your former co-workers.  And it is totally separate and apart from your neutral reference.

But I Want a Positive Reference!

Sometimes, a company will agree to provide a positive letter of reference with their severance.  This may make you feel better, but it is not always beneficial.  It is not always in your best interest.

As we mentioned earlier, neutral references are becoming more or less standard practice.  If a neutral reference is the standard, then what is an employer to think of a positive reference letter?  It might make your potential employer wonder what happened at the end of your employment.

Of course, it is much better than a negative reference (or no reference at all), so if you can get a positive reference letter, it is better than nothing.

What Should I Do?

Talk to a lawyer!  Granted, we’re biased, but transitioning employment is hugely important. It is a turning point in your life.  Surely it is worth investing a bit to make sure that the transition is as smooth as possible. 

 

The employment lawyers at Granovsky & Sundaresh PLLC have over two decades of experience dedicated to helping people through every employment law issue imaginable (and some unimaginable issues).  If you need us, we’re here to help.  Contact us today to schedule a consultation – your career is worth it.

 

 

 

Why Should I Have My Severance Agreement Reviewed?

Never sign a severance agreement before you completely understand it.  A severance agreement can impact your future opportunities, your earning potential, and even your overall career trajectory.   Keep in mind, your severance agreement was written by and for your employer – not for you.

Most employees who are offered severance should hire an experienced severance attorney to conduct a thorough severance review for several reasons.

  • Your agreement may create responsibilities that you are not aware of.  Some agreements require an employee to be available to assist with transition or other duties as part of their severance.
  • Your agreement might limit what you can do in the future.  Some agreements impose restrictions on an employee’s ability to work for competitors, or solicit clients or co-workers.
  • Your agreement might not properly compensate you to give up your rights.  Your former employer is not paying you because it is nice.  Your employer is paying you not to sue.  But without a thorough understanding of your legal rights, you might not know what you are being asked to give up – let alone what the lawsuit you are agreeing not to file might be worth. 

Severance review by an experienced attorney can help you avoid these and many other potential pitfalls.  Yes, severance review costs money, but your career is worth it.  If you have any questions, please feel free to contact us.  An attorney will get back to you within 24 hours.

Does My Severance Agreement Supersede My Non-Compete

Short answer - it might.  But if it does, that means that your employer was probably pretty sloppy.  Most severance agreements contain an “Entire Agreement” clause that reads something like:

This Agreement contains the entire agreement between the Company and you regarding your termination and supersedes and renders null and void any and all prior or contemporaneous oral or written understandings, statements, representations or promises.                 

If you have a non-compete agreement which predates your severance agreement, and the above-language is in your severance agreement then the severance agreement supersedes and renders null and void your prior non-compete.  In other words, by signing the severance, you kill the non-compete (along with any other agreements that were signed before your severance).  We’ve seen it happen, but this would definitely be sloppy work by the company.

The reason this would be sloppy is because it is very easy to carve out an exception for non-compete agreement.  All an employer has to do is revise the above “Entire Agreement” clause so that it states

This Agreement contains the entire agreement between the Company and you regarding your termination and supersedes and renders null and void any and all prior or contemporaneous oral or written understandings, statements, representations or promises, with the exception of any agreements concerning confidentiality, trade secrets, or any nonsolicitation, or noncompetition agreements, all of which agreements shall remain in full force and effect, and are hereby confirmed and ratified.        

This one revision makes a big difference.  Now, the severance agreement is still the final binding agreement between the employee and the employer, but it explicitly carves out the non-compete, etc. so that the employee is still bound by it.

If you have a non-compete agreement or severance agreement, you would be wise to consult with an attorney.  Our attorneys counsel employees with these agreements every day and would be happy to help you.  Contact us today for a consultation.

 

Should I Negotiate My Own Severance Package?

Short Answer:  Probably Not.  Keep in mind, an employment lawyer is writing this – I’m biased!

If you are offered a severance and want something more, it is time to negotiate.  Many people hire employment attorneys to negotiate on their behalf.  Others try to do it on their own.  There are advantages and disadvantages to doing it on your own.  Below is a breakdown.

Advantages of Negotiating Your Own Severance Package:

  • It’s free! If you hire an employment lawyer to do it for you, chances are there is a fee involved. For what it is worth, my firm, Granovsky & Sundaresh charges a small flat fee plus a percentage of how much we improve your severance. But pretty much no matter which lawyer you hire, there is something coming out of your pocket. On the other hand, if you do it yourself, it’s free.

  • It may be the best way to leverage personal equity. Imagine a situation where an employee has been with a small company for 25 years. The higher ups in that company probably know about the employee’s personal life, family, etc. That employee can negotiate for severance based on his or her individual situation and personal equity/goodwill with the company. “I need it to support my family” may sound more compelling from the employee than from an attorney.

  • It’s fun! Negotiating is fun. It is you against the company pushing for more. It is stressful and exciting, but it can be fun. Waiting to hear back from your lawyer, on the other hand, is stressful and boring.

Disadvantages of Negotiating Your Own Severance Package:

  • You don’t know what the heck you’re doing. Unless you’ve negotiated in the past, chances are you are not a great negotiator. Common mistakes that people make when they negotiate for themselves include: making their ask too high and ruining credibility, making their ask too low, and ruining their bargaining flexibility, not realizing potential sources leverage that could increase bargaining power, and, finally, taking a hostile stance which stymies negotiations. Granovsky & Sundaresh has negotiated hundreds of severance agreements. We love this, it’s what we do, and we get results.

  • You may take it too personally. Severance should focus on setting the employee up for a brighter future, not quibbling over the past. While what happened during employment is certainly important, what matters most is the future. An employee who was recently let go is often hurting, embarrassed and angry. These are natural reactions, but these emotions are often counterproductive to efficient negotiation.

  • Attorneys make you a more viable threat. The document your company wants you to sign is not just a severance. It is a severance agreement and release. The “and release” part is why you are getting severance to begin with. In exchange for severance (usually money), you are releasing (promising not to sue) the company. In other words, the company is paying you to go away peacefully and not sue them. If you hire a lawyer to negotiate your severance, the possibility of you suing the company becomes a lot more viable. This is especially important if you have potentially viable claims against your company. Which bring us to our next disadvantage …

  • Attorneys can parse out your legal leverage. Remember, the company is paying you not to sue them. Sue them for what? Often times, employees sign severance agreements and give up viable claims that they did not know they had. If you consult with an employment lawyer, you can parse out potential claims which an attorney can turn into leverage and then into money in your pocket.

  • Attorneys are awesome. We get a bad rap, but that’s unfair. Employment lawyers work hard to protect the working rights of all Americans. And a good employment lawyer will help to secure you a better severance. What could be better than that?

 

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If I Negotiate My Severance, Will the Company Pull the Original Offer?

Short answer:  Probably not.

Here’s the scenario.  Company lays off employee.  Company offers employee $25K severance.  Employee believes he/she should get more than $25K, hires lawyers to negotiate, but is afraid that Company will respond by taking the original $25K off the table.

Will the Company pull the offer?  It is possible, but not plausible.  Let’s break it down:

1.      It is technically possible that the Company will pull the offer.  When Employee negotiates, he/she is, in fact REJECTING the offer that has been made by Company and making a counter offer.  Well, if Employee REJECTS Company’s offer, then that offer has been rejected and is, technically speaking, no longer on the table.

2.      It is not plausible.  Company offered Employee money to go away peacefully and not bother them anymore.  Why on earth would it respond to a request to negotiate by withdrawing an offer?  If Company pulls the offer, Employee has no choice but to sue – something Company was just willing to pay Employee not to do.

Granovsky & Sundaresh has negotiated hundreds of severance agreements.  Nearly every new client asks us whether the company will pull their offer if they negotiate.  It has never happened.  This is not to say that the Company will necessarily increase their offer, or even be willing to negotiate, but it does show that, much more often than not, just negotiating a severance agreement will not result in the company withdrawing an offer it already made.

With offices in New York City and Cleveland, Ohio, Granovsky & Sundaresh PLLC specializes in negotiating severance agreements for employees.  As of October 2016, we have improved the severance of 92.1% of our clients.  Please call or email today for a free initial telephone consultation.

Explain My Severance - Part 6: No Consideration Absent Execution Clause

Explain my severance:  What is it?

The No Consideration Absent Execution Clause makes clear that the money (or other consideration) the employee gets pursuant to a severance agreement is separate and apart from anything else the employee is otherwise entitled to.  For any contract (and severance agreements are contracts) to be valid, each party has to get something.  If the employee only gets what he/she is already entitled to (e.g. already earned wages, commissions, or bonuses), then that employee gets no consideration by virtue of the severance agreement.

Explain my severance: What does it mean?

The No Consideration Absent Execution Clause means that if the employee does not sign the agreement, the employee does not get the consideration laid out in the severance agreement.  This does not mean that the employee does not get what he/she has already earned, only that the employee gets nothing more.

Explain my severance: What's the point?

The No Consideration Absent Execution Clause is a fairly standard "bells and whistles" provision in a severance agreement.  It is there to provide evidence that the employee got something of value in exchange for their promises (agreement not to sue, disparage, or disclose secrets of the company, etc.).  Honestly, it does not add a lot of value, because ultimately, the company if a company has to defend a severance agreement, it will have to show that the employee received consideration regardless of a No Consideration Absent Execution Clause.  On the flip side, an employee should not expect to receive the benefits of severance if he or she is not willing to sign the agreement.

Explain my severance: The Upshot.

A basic principle of contracts is that each side has to get something for a contract to be valid.  Thus, if the only thing the employee gets is something to which he/she is already entitled, that employee did not get anything at all.  A No Consideration Absent Execution Clause makes more clear that the employee is getting something "extra" in exchange for his or her promises, and that he/she gets nothing if they do not sign.  The tough question is usually not whether the employee is getting something in exchange for signing a severance agreement, the real question is whether the employee is getting enough given the value of his or her promises (helpful article).

Sample No Consideration Absent Execution

If you need help with your severance agreement, please feel free to contact us.  We charge a reasonable flat fee to review your severance agreement and offer same-day service.

Read More:

Explain My Severance - Part 1:  The Release

Explain My Severance - Part 2:  The Neutral Reference

Explain My Severance - Part 3:  Non-Disparagement Clause

Explain My Severance - Part 4:  Non-Admission Clause

Explain My Severance - Part 5:  No Re-Employment Clause

 

Explain My Severance - Part 5: The No-Reemployment Clause

Explain my severance:  What is it?

The No-reemployment clause prevents a departing employee from coming back to the company.  This is part of the consideration that goes to the company.  In exchange for severance (money, benefits, reference, etc.), the company gets, among other things, a promise from the employee to go away.  And stay away.  The no-reemployment clause is the second promise - to stay away.

Explain my severance: What does it mean?

The no-reemployment clause is self-explanatory.  It says don't come back.

Explain my severance: What's the point?

The no-reemployment clause closes a "situation" for an employer.  It effectively closes the chapter on an employee.  There are many reasons that companies like these, but there are two primary reasons.  The first is the obvious, the employee is being paid to go away and stay away.  This justification is especially useful for problematic employees or when there is a contentious relationship.  The second reason is that is helps a company avoid liability for a later claim (by the same employee) for discriminatory or retaliatory failure to rehire.

Explain my severance: The Upshot.

It is the rare employee who is terminated and then wants to come back.  It is even more rare in the case of a no-reemployment clause.  The good news is that most companies retain the option of re-hiring an employee.  And this does happen from time to time.  If an employee has a good relationship with his or her former employer, nurtures that relationship, and an opportunity comes up, that company may still re-hire the employee even in the face of a no-reemployment clause.  For the most part, this clause simply gives the company an easy way to say no.

Sample Non-Admission Clause

If you need help with your severance agreement, please feel free to contact us.  We charge a reasonable flat fee to review your severance agreement and offer same-day service.

Read More:

Explain My Severance - Part 1:  The Release

Explain My Severance - Part 2:  The Neutral Reference

Explain My Severance - Part 3:  Non-Disparagement Clause

Explain My Severance - Part 4:  Non-Admission Clause

 

Explain My Severance - Part 4: The Non-Admission Clause

Explain my severance:  What is it?

The Non-admission clause is a statement by your former employer that, even though they are paying you a severance, they are not admitting to anything.  In addition to non-admission, the company usually also expressly denies having done anything wrong.

Explain my severance: What does it mean?

A non-admission clause is self-explanatory.  The company is not admitting anything (this is what "non-admission" means).  Even though the company is paying a severance, and even if the severance is substantial, there is no admission of any wrongdoing.  These clauses are very common.  In fact, even when there is a lawsuit, settlement agreements typically contain non-admission clauses.

Explain my severance: The Upshot.

It is unclear how much value these clauses add because: (1) severance/settlement agreements typically contain confidentiality clauses which prohibit the employee from disseminating the terms of the agreement, (2) a severance/settlement agreement settles and resolves the dispute between the company and the employee, so even if it is an admission, the employee cannot bring a claim, and (3) even without the non-admission clause, there is usually nothing else contained in a settlement or severance agreement which could constitute an admission.  Nevertheless, companies like these clauses because non-admission clauses preclude the possibility that a confidential settlement agreement will be used against the company in the future.

Sample Non-Admission Clause

If you need help with your severance agreement, please feel free to contact us.  We charge a reasonable flat fee to review your severance agreement and offer same-day service.

Read More:

Explain My Severance - Part 1:  The Release

Explain My Severance - Part 2:  The Neutral Reference

Explain My Severance - Part 3:  Non-Disparagement Clause