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Horton Law Firm Blog Severance Agreements and Release of Claims

Severance Agreements and Release of Claims

I meet with people weekly to review severance agreements.  Almost all severance agreements include a release of claims.  A release of claims is an agreement whereby the one person agrees not to assert claims or file lawsuits against the other. It is logical to wonder if an employer is willing to pay something for a release of claims, whether your claims might actually be worth more money.  And it is possible that requiring an employee to sign a release of claims to collect severance might be a violation of federal law.  So, what do you do?

First, it is not a bad idea to consult an experienced employment lawyer. Of course, there is a cost.  I charge $265 for a one hour consult, but will try to review the agreement ahead of time if it is scanned or faxed.  It is hard to let go of the cash having just lost a job, but saving money can end up costing money.

So, what does someone get for $265?  The short answer is an hour of my time.  During the one hour consultation, I review the agreement and explain its terms.  I also review the facts of the client’s discharge to determine if the termination is discriminatory or wrongful under the law.  If the client has employment law questions, I answer them.  And then I advise the client of any alternatives that might be available to severance, whether that being negotiation or litigation.

Severance which involves a release of claims is essentially an offer to purchase an employee’s right to sue.  If someone is selling a car, she needs to know the Blue Book value of the car to decide if she is getting a good deal.  If someone is settling legal claims, then she needs to know her legal rights to determine if the settlement amount is fair.  Usually, this requires an experienced employment law litigator.

Can a discharged employee make a counteroffer?  Sure.  But, it can be difficult to negotiate more severance, especially without the leverage of a valid legal claim.  Companies need a good reason to pay an employee more money, and sympathy usually doesn’t work.  And even with the assistance of a lawyer, without a legitimate legal basis to bring a lawsuit, there is very little incentive for a company to pay more severance.

However, even though an employer might not be willing to pay additional severance, some will agree not to contest a claim for unemployment benefits.  If an employee has been fired and has no legal recourse, there is value in being permitted to resign.  Most of the time, it is more important to think about getting the next job instead of trying to hang onto the last one.  In some cases, an employer will agree to let an employee resign and still not contest a claim for unemployment benefits.

More and more, the severance includes a re-affirmation of a non-compete agreement’s obligations.  If an employee has a non-compete, then it is even more important to seek legal advice.  Non-competes add to the pain of termination, and sometimes severance negotiations can provide an opportunity to negotiate a shorter non-compete.

Finally, whatever the severance agreement, employees need to make sure all the promises are in writing.  Some make the mistake of relying on an oral promise.  If it is important to the deal, it needs to be in writing.

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