The Top 9 Severance Package Landmines for Employees, Part 1

Columbus Severance Packages Lawyer Discusses Package Landmines for Employees

In a previous article, [An Employee’s Guide to Severance Packages], I discussed the various types of severance packages and agreements that employees may receive at the end of their employment with a company. These agreements frequently contain language which can be very damaging to an employee’s future interests. Because of this, this month I want to discuss the top 10 landmines that I frequently see in severance packages.

1. “All compensation owed” clauses.

Severance agreements frequently include a harmless sounding sentence that goes something like this: “Employee acknowledges and agrees that they have received all compensation owed to them by Employer.” If they notice this clause at all, many employees assume that it refers to salary owed to them through the termination of their employment. “Compensation,” however, can mean much more than just salary. It might refer to anything that the company owes an employee, for example bonuses, commissions, accrued vacation pay, stock options, and deferred compensation. These can be important and at times more valuable than whatever is being offered in the severance package. For example, you don’t want to give up 10 weeks of accrued vacation pay or a substantial bonus in exchange for 8 weeks of severance.

2. Merger clauses.

Merger clauses often appear towards the end of a document, and might seem irrelevant, boilerplate legalese. A typical merger clause will state “this agreement constitutes the full and complete agreement between the parties, and supersedes any and all prior agreements. This agreement may only be modified in a writing signed by both parties.”

Once such an agreement is signed, you will legally be entitled only what is contained in the actual agreement. You will have a very difficult time arguing that you are entitled to any sort of side deal or promise that is not contained in the agreement itself.

As you might guess, this is dangerous when combined with the “all compensation owed” clause as defined above. An oral agreement with your employer that they will pay you your bonus in addition to the severance package may not stand up in court, if by its own terms the written agreement supersedes that previous promise. Employees need to ensure that whatever you believe is coming to you is spelled out in the agreement itself, or you risk losing it.

Frequently, we have clients who have sought clarification of something in a severance agreement, such as “does this release apply to my 2016 bonus payout?” Sometimes this is done verbally, and sometimes it is done in writing (typically via an e-mail). Strictly applying a merger clause, that clarification could be viewed as a side deal and not considered by a court. Practically speaking, though, a court may not permit an employer to lie to an employee to get them to sign a deal to waive their rights, especially if the statement is in writing. However, this is an avoidable fight.

3. Non-competes and re-affirmations of non-competes.

As part of their employment, many employees have entered into non-compete agreements with their (now) former employer. Generally, these agreements prevent employees from engaging in certain types of activity within a certain geographic area for a certain time after the end (voluntary or involuntary) of their employment.

If you have a non-compete, it is likely that any severance package that you receive will require you to re-affirm the non-compete.  Otherwise, by operation of the merger clause defined above the non-compete would cease to exist. For example, the agreement might say: “employees agrees that non-compete agreement entered into on X date remains in full force and effect.” Sometimes, the terms of the prior non-compete are simply re-stated in the severance agreement.

Employees must pay attention, however, to see that terms and conditions of their non-compete listed in the severance agreement are not different from those in the original non-compete. Employers may feel like they are “purchasing” a more comprehensive or longer non-compete by paying a severance, or their standard language may have changed since you first signed the non-compete agreement. Non-competes are often enforceable, and you should make absolutely sure that you understand what you are agreeing to before you sign.

4. Cooperation clause.

Severance agreements often contain what is known as a cooperation clause, in which an employee agrees to cooperate with their former employer in future litigation. This typically requires you to not speak to a lawyer or other former employees about your work with the company without a subpoena, to give testimony at your former employer’s request, and to meet with your employer’s attorney prior to giving any testimony.

Like it or not, you may be a witness to what you saw going on while you worked for your former employer. Your former employer does not want you talking with any attorney or other employee about what you witnessed without their consent. In the event that you are subpoenaed to testify as a witness at a deposition or at trial, they will require you to meet with their lawyer before you testify. While legally, and perhaps obviously, they cannot control what you say under oath, they will attempt to convince you of the company’s side of the story.

Assisting the company that just fired you might be the last thing you want to do. Further, you may not receive any sort of payment for the time you spend cooperating (although this can sometimes be negotiated).  If you think you may be a witness, this is something you need to take seriously.  Two important addendums to such clauses ought to be considered. One, reimbursement of expenses, eve lost wages, where applicable. Two, a restriction which limits the cooperation to reasonable levels.

We will explore five more severance package landmines in {Part 2}