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Tim's Missouri Employment Law By Attorney Tim Willoughby St. Louis employment lawyer, representing employees and small businesses

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Severance Agreements, Separation Agreements, and Waivers of Rights

This article pertains to cases where you are fired and the employer offers you some money in exchange for you signing a waiver of your legal rights.

This article does not focus on what to do if the employer failed to give you the right amount of "severance pay" under the company's standard severance pay program. If the company has a standard, published, severance pay program, and the employer does not honor its obligations, then you have a benefit problem. You are welcome to call me and talk about it.

Introduction to Severance Agreements

It's quite common today for employees, particularly management level employees, to be presented with a Severance Agreement when they are fired. Sometimes these Agreements are titled "Separation Agreement and General Release" or similar words. I usually just call them Severance Agreements.

Typically, the employer gives you the Severance Agreement to take to your lawyer for review. You'll probably be given 21 days to decide whether to sign, and then 7 days to revoke your signature (these time limits are prescribed by Federal Law in cases where the employer wants you to waive your right to sue for Age Discrimination). In certain cases, such as big layoffs, the employer must give you 45 days to decide, then 7 days to revoke. But if the employer does not care about an Age Discrimination waiver (such as for persons younger than 40), the employer does not have to give you any particular amount of time to decide, and does not have to give you a revocation period. But most of the time, for ease of administration, employers give you the 21 days to decide and the 7 days to revoke.

The main purpose of Severance Agreements is to obtain a waiver of all your rights, so that you can't sue the employer. To induce you to sign, employers offer to pay you some money.

Waivers contained in Severance Agreements are enforceable. If you sign, expect to be completely bound. Lawyers will not give you a contingency fee to get you out of the waiver.

These waivers are enforceable. If you sign, then almost certainly you are completely bound; you have given up your right to sue and collect damages. The EEOC believes that you have not given up your right to file charges of discrimination, but employers disagree. Regardless, it appears at this writing that whether or not you have given up your right to file EEOC charges, you have probably given up your right to collect any damages.

The chances of a court allowing you to break the waiver, or wiggle out of the waiver somehow, are slim. It would be hard to envision a case where the employer paid you money and you signed a waiver, where an employment lawyer would then give you a contingency fee and fight to get you released from the waiver. Anything is possible, but it's highly unlikely.

In Missouri, the employer can probably revoke the Severance Agreement before you sign it.

In most cases you are fired at the same time the Severance Agreement is given to you. You may be angry or upset. You may do or say something stupid. The employer, if it chooses to, can revoke the severance offer and there is not much you can do about it (except exercise such legal rights as you have, since you didn't sign the waiver). The first reported case where an employer revoked the severance offer, and the employee sued over the revocation, resulted in the court ruling that the employer can revoke before you sign. But most employers do not go looking for reasons to try to revoke the severance offer, because they really do want you to sign it.

TRAP: Employers often use Severance Agreements to fix bad non-competes that you signed earlier, or to get you to sign a non-compete for the first time.

A Severance Agreement can contain any terms the employer wants to put in there. It is common that employers put non-compete language in the Agreement, or they put new non-compete language in the Agreement that is better-worded that the earlier non-compete you signed. So when you bring the Severance Agreement to a lawyer for review, you have to also deal with the law of non-competes, and the consultation gets quite complicated. I have written an article talking about  non-competes.

TIP: Severance Agreements are usually negotiable.

The offer of a Severance Agreement is like any other contract offer: If you are unhappy with the terms you can request different terms. Most employers are willing to make some changes for you, if your demands are reasonable under the circumstances. Depending on your bargaining power, you might be able to negotiate for quite favorable changes. If you have a lot of bargaining power, you might be able to increase the money offer substantially. But here's a big TRAP: Under the law of contracts, when you propose a new agreement on different terms than the original offer, you have "rejected" the offer. The employer does not have to put the original offer back on the table if it then rejects your proposed changes. Contract negotiations are very delicate and important events. Many people mess up their negotiating position before they ever see a lawyer. I talk more about messing up your negotiating position in my contracts article.

You have three problems when you have a severance agreement in hand

• First, you have a contract issue: Someone has offered you a contract and you need legal advice about whether to sign it, and whether the terms are reasonable, and whether the terms need to be changed or new terms need to be added.

• Second, you need a legal consultation to determine the strength of your legal rights and the extent of your bargaining power. I have written some articles that talk a bit about some of the sources of legal rights and bargaining power that lawyers consider in trying to help you determine the strength of your legal position (but there are many circumstances that can give you bargaining power that I choose not to write about): wrongful termination,   retaliation,   discrimination,   whistleblowers,  FMLA,  contracts generally,   non-competes,   overtime,   defamation,   complaints,   Hostile Environment,   workers comp retaliation,  commissions,   service letters,   Things I like to see in cases,   At-will employment rule.   There are many other things that need to be considered in determining whether your situation provides you with bargaining power. The articles I listed do not describe the only sources of bargaining power, but the articles introduce you to some of the considerations important to lawyers.

• Third, you need help in determining how best to make use of whatever legal strengths or bargaining power you might have. Even if you have seemingly strong legal rights, it's often best not to exercise those rights. Sometimes when your rights are weak, it still makes more sense to exercise your rights than give away those rights in exchange for a token tiny severance payment. The more money being offered in severance, the more difficult the decision becomes. Depending on your personal situation and the unique facts of your case, sometimes changes in the contract language can have higher value than the money itself. The ultimate decision on how to proceed is a very important and difficult one. If you sign the waiver without having a lawyer review it with you, then you may be making a giant mistake.

Here's how I handle consultations related to Severance Agreements.

I get a lot of telephone calls from people who have been given a Severance Agreement to consider signing. Many of these people don't want to pay a lawyer to consult about the Agreement. Instead, they want a lawyer to tell them, over the phone, whether they've got a "good case." I always refuse to discuss their cases over the phone. Here's why: Whether or not they have a "good case" they might still have good bargaining power, and it takes a lot of time to figure that out. Also, they still have a contract problem, and I haven't even seen their contract. If I tell them it sounds like they have a "weak case," they'll turn around and sign the darn contract, and the contract may be awful for them, and they have given up whatever bargaining power they had.

I have you come to my office with your Agreement and all of your documents related to your employment. I go through the Agreement with you carefully, explaining the meaning and legal effect of the provisions. I then tell you what terms seem to be unreasonable. I tell you what terms are missing from the Agreement that could be of high value to you if added to the Agreement. Then we talk about your legal rights, and try to determined what the value of your rights might be, and how much bargaining power you might have. I help you decide whether to: 1) Sign the Agreement or 2) Demand modifications to the language or 3) Demand more money and modifications or 4) Forget about the Agreement and exercise your legal rights.

It typically takes at least 1.5 hours of billable time to go through all of the legal issues involved and help you plan your strategy. I try to arm you with enough information so that you are able to approach the employer and seek contract modifications yourself. I am happy to handle the modifications for you, if you prefer, but I do not expect to handle them for you. If you have a worthwhile case and wish to exercise your legal rights rather than sign the Agreement, we can talk about the terms under which I will represent you. As for the initial meeting with you to go over the contract and plan your strategy, I almost always review Severance Agreements on a pure hourly fee basis.