birmingham-severance-reviews-7-red-flags-before-you-sign

Severance agreements are commonly presented at the end of an employment relationship, often during a termination meeting or shortly afterward. Employers may offer severance pay or benefits as part of the separation process, typically in exchange for the employee signing a legal agreement that outlines the terms of their departure. In many situations, employees are given only a short window to review and sign the agreement before the offer expires.

Many severance agreements contain complex legal language that can be difficult to interpret without legal guidance. These documents often include provisions that limit an employee’s ability to bring legal claims, discuss workplace issues, or work within certain industries. In some cases, employees may unknowingly give up important rights simply by signing the agreement.

For this reason, it is critical to carefully review any severance agreement before accepting its terms. Taking the time to understand what the agreement requires—and what rights it may waive—can help employees avoid unintended consequences later on.

#1: A Broad Release of Legal Claims

What a Release of Claims Means

One of the most important provisions in a severance agreement is the release of claims. This clause generally requires the employee to waive their right to bring legal claims against the employer in exchange for the severance payment being offered.

Claims Often Included in the Release

A severance agreement’s release language often covers a wide range of potential claims, including:

• Wrongful termination
• Workplace discrimination
• Retaliation for reporting misconduct
• Wage and hour violations
• Workplace harassment claims

Why Broad Releases Can Be Problematic

A broad release of claims can create serious risks for employees. In many cases, individuals sign severance agreements before they fully understand whether they may have a valid legal claim related to their termination or workplace treatment.

Another concern is that the financial compensation offered in a severance package may not reflect the potential value of the legal rights being waived. Without a careful evaluation of the circumstances surrounding the employee’s departure, it can be difficult to determine whether the severance offer is fair.

#2: Severance Pay That Is Lower Than Expected

Industry Norms for Severance Packages

Severance packages often follow general industry guidelines. A common formula is one or two weeks of pay for each year of service, although the actual amount can vary depending on the employee’s role, seniority, and the employer’s policies.

However, not all severance offers follow these informal norms. Some employers present offers that are significantly lower than what employees might reasonably expect.

Situations Where Severance May Be Inadequate

Certain situations may indicate that a severance offer is unusually low. For example, a long-term employee who has worked for a company for many years may receive only a few weeks of severance pay. Similarly, executives or managers may be offered packages that fall well below industry standards for their level of responsibility.

In some cases, employers present minimal severance offers simply to resolve the separation quickly, assuming the employee may accept the offer without questioning it.

Why Severance Amounts Can Often Be Negotiated

Many employees assume that severance packages are fixed and non-negotiable. In reality, employers often expect some degree of negotiation during the severance process.

Factors that may influence negotiation include the employee’s tenure, performance history, contractual obligations, and potential legal exposure for the employer. Because of this, the first offer presented by an employer may not necessarily be the best offer available.

#3: Non-Compete and Non-Solicitation Restrictions

What These Clauses Restrict

Severance agreements sometimes include non-compete or non-solicitation clauses that restrict an employee’s activities after leaving the company.

These clauses may prohibit employees from:

• Working for competing companies
• Starting a competing business
• Contacting former clients or customers
• Recruiting former coworkers

How These Clauses Affect Future Employment

For many professionals, especially those working in specialized industries, restrictive covenants can limit job opportunities. A broad non-compete clause may prevent an employee from working in their field within a certain geographic area or for a specified period of time.

#4: Confidentiality and Non-Disparagement Clauses

Confidentiality Requirements

Severance agreements often contain confidentiality provisions that restrict employees from discussing the terms of the agreement or the circumstances surrounding their departure.

In some cases, these clauses prohibit employees from sharing information about workplace issues, internal investigations, or employment disputes.

Non-Disparagement Provisions

Non-disparagement clauses require employees to refrain from making negative statements about the company, its leadership, or its business practices.

Potential Risks

Confidentiality and non-disparagement provisions can become problematic when they are drafted too broadly. Some agreements include language that is vague or expansive enough to create uncertainty about what employees are allowed to say.

In extreme cases, violating these provisions could expose a former employee to legal action or require repayment of the severance compensation. Because of these potential consequences, it is important to carefully review these clauses before agreeing to them.

#5: Strict Deadlines to Sign the Agreement

Pressure to Sign Quickly

Another common red flag in severance agreements is a short deadline to sign the document. Employers sometimes provide severance agreements with instructions that they must be signed within a few days—or even within 24 to 48 hours—to receive the offered compensation.

These tight deadlines can create significant pressure during an already stressful situation. Employees who have just lost their job may feel rushed to accept the offer before it disappears, particularly if they are concerned about their finances or benefits. 

Legal Timeframes in Certain Situations

In some circumstances, federal law provides employees with additional time to consider a severance agreement. For example, employees who are 40 years of age or older and are asked to waive age discrimination claims under the Age Discrimination in Employment Act (ADEA) are generally entitled to specific review periods.

In many cases, these employees must be given at least 21 days to review the agreement, along with a seven-day revocation period after signing. 

#6: Benefit and Compensation Issues

Health Insurance Continuation

Health insurance coverage is one of the most important considerations after a job loss. Many employees rely on COBRA coverage to continue their existing health insurance plan after termination.

However, severance agreements may differ in how they address health insurance. Some employers agree to pay all or part of COBRA premiums for a limited period, while others leave the full cost to the employee. 

Unused Vacation and Bonuses

Another key issue is whether the agreement addresses unused vacation time, accrued paid time off, and bonuses.

Depending on company policy and applicable laws, employees may be entitled to payment for unused vacation or earned bonuses. A severance agreement should clearly state whether these benefits will be paid and when the payment will occur. 

Stock Options or Equity Interests

For employees who receive compensation in the form of stock options, restricted stock units, or other equity interests, the severance agreement may affect how those benefits are handled.

Some agreements accelerate vesting of equity awards, while others may terminate unvested shares immediately upon separation. The treatment of these benefits can significantly affect an employee’s financial situation, particularly for executives or long-term employees.

#7: Language That Limits Future Employment Opportunities

Restrictive Employment Provisions

Certain agreements include language restricting employees from working for affiliated companies, subsidiaries, or related organizations. In some cases, these provisions extend beyond traditional non-compete agreements and create additional barriers to employment.

Reference and Reputation Issues

Severance agreements may also address how the employer will respond to future reference requests. Some agreements limit what information the employer will provide to prospective employers, while others include agreed-upon reference language.

While neutral references are common, unclear language regarding references may create uncertainty for employees seeking new employment.

Impact on Professional Reputation

In certain cases, the language used in a severance agreement may affect how an employee’s departure is characterized. If the agreement limits what the employee can say about their experience or restricts discussions about workplace issues, it may indirectly influence how the employee presents their professional history during future job searches.

Speak With a Birmingham Employment Lawyer Before Signing a Severance Agreement

If you have been offered a severance agreement in Birmingham, Michigan, it is important to understand exactly what you are agreeing to before signing.

Many severance agreements contain provisions that can affect your ability to pursue legal claims, work in your industry, or speak about your experience at the company. Having the agreement reviewed by an experienced employment lawyer can help ensure that your rights are protected and that the terms are fair.

Batey Law Firm, PLLC focuses exclusively on employment law and represents employees throughout Michigan in matters involving severance agreements and negotiations, wrongful termination, workplace discrimination, retaliation claims, ADA and FMLA violations, and employment contract disputes.

Contact Batey Law Firm, PLLC

Batey Law Firm, PLLC
30200 Telegraph Rd., Suite 400
Bingham Farms, MI 48025

Phone: 248-540-6800
Website: www.bateylaw.com