Some words of caution when presented with a severance agreement

You were just fired, canned, dismissed, terminated, let go.  Whatever term you prefer, the reality is the same – you no longer have a job.  So, what now?

You may have been presented with a severance agreement as you were being ushered out the door.  At first the prospect of some additional cash may be very attractive especially when the reality sets in that a regular paycheck is no longer in the near future.  However, you should be cautious before signing upon the dotted line.

A severance agreement will contain a number of clauses that are often drafted in legalese and may be difficult to understand if you are not familiar with that type of writing.  Understanding your rights and what you are giving up is important before you make the decision as to whether or not to accept a severance agreement.  

Release of Claims

A signed severance agreement is a contract between the employee and the former employer.  In exchange for the promised money or other incentives, you are giving up rights, and most commonly you are giving up your right to bring a claim against the employer (and recover any money) for any wrong that may have occurred in the workplace.  As most employer/employee relationships are at-will (meaning there is no contract and can be ended at any time by either party) you may not actually be giving up any real right that they would have had, but that is not always the case.   


I would venture a guess that 99.99% of all severance agreements contain a confidentiality agreement.  Typically, the confidentiality clause will limit your ability to disclose the existence of the agreement to anyone except a spouse, accountant and/or your attorney.  However, you need to be sure that you understand what you are agreeing to keep confidential prior to signing because you may be agreeing to keep much more confidential than you originally anticipated.


Is the employer going to object to you collecting unemployment?  Even if the employer stated in your exit interview that they were not going to contest your ability to collect unemployment that should be addressed specifically in the severance agreement.  Any well-drafted severance agreement will state that the agreement is the full-agreement between the parties, and supersedes any prior agreements.  This means that even if the employer said that they would not contest, if your severance agreement is signed after that verbal promise was made the employer could still later decide to try to contest your ability to collect unemployment.


Who will your future job prospects call for a reference?  What will be said?  All this can be negotiated and included in a severance agreement.     

Noncompete Clauses

Even if you did not sign a noncompete when you started, your former employer may try to sneak one into the severance agreement.  Prior to signing the severance agreement you should understand the ramifications of the noncompete language and decide beforehand whether these restrictions are something that you can live with.


This article in no way contains all the factors that should be considered when reviewing a severance agreement.  It is also not state specific so there may be other considerations that need to be taken into account for your specific state.  It is simply to illustrate a point – know what you are signing and understand your rights before binding yourself to this legal document.

If you have a severance agreement that you would like to review with a member of our employment law team, please give our office a call at 413-733-9111.

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