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Severance in Q1: 7 Terms to Negotiate Before You Sign in Michigan
For many Michigan employees, Q1 is when uncomfortable conversations happen. New budgets are finalized, departments are restructured, and companies make “right-sizing” decisions they postponed until the new year. Layoffs spike, but so do quieter exits—roles eliminated, positions “reimagined,” or employees encouraged to move on with a severance package in hand.
Severance agreements today are less about courtesy and more about risk management. Employers use them to limit lawsuits, prevent public criticism, and close the door on future claims. That’s why these agreements often arrive with tight deadlines and reassurances that the terms are “standard.”
This is where many employees make costly mistakes.
In Michigan, signing quickly can mean giving up far more than you realize. Severance agreements are legal contracts, drafted to protect the company. Assuming they are non-negotiable—or that they exist primarily to help you transition—often leads employees to trade away important rights for less compensation than the situation warrants.
#1 Severance Pay Amount & Payment Structure
Lump Sum vs. Salary Continuation
Severance is typically paid in one of two ways:
- Lump sum, paid shortly after signing
- Salary continuation, paid over time through payroll
A lump sum provides certainty and faster access to funds. Salary continuation may preserve benefits longer, but it can also stop early if you find new work—depending on the agreement’s language.
How Severance Pay Is Typically Calculated
Employers often anchor severance to:
- Length of service (e.g., one or two weeks per year)
- Position or seniority
- Perceived legal risk
Why Timing of Payment Matters
Payment timing affects:
- Cash flow
- Benefit eligibility
- Tax planning
Some agreements delay payment until after revocation periods or the end of the calendar year. Others trigger payment only after multiple conditions are met. These details should never be glossed over.
Tax Implications Employees Often Overlook
Severance is usually treated as taxable income. A lump sum can push an employee into a higher tax bracket for the year. In some cases, spreading payments—or negotiating timing—can reduce the tax impact.
#2 Release of Claims — What You’re Really Giving Up
What Claims Are Usually Released
Most severance agreements require employees to waive:
- Discrimination claims (race, sex, age, disability, etc.)
- Retaliation claims
- Wage and hour claims
- Wrongful termination claims
- Claims under state and federal employment laws
Why Broad Releases Matter More Than Severance Pay
A broadly worded release can cover unknown claims, not just issues you’re aware of today. In many cases, employees give up rights worth far more than the severance payment itself.
This is why severance negotiations are not just about money. Narrowing the release—or carving out certain claims—can be more valuable than adding another week of pay.
Age Discrimination Releases and OWBPA Requirements (40+ Employees)
If you are age 40 or older, federal law imposes strict requirements under the Older Workers Benefit Protection Act (OWBPA). Among other things, the agreement must:
- Clearly explain what rights are being waived
- Give you 21 days to consider the agreement (45 days in group layoffs)
- Allow 7 days to revoke after signing
When a Release May Be Unenforceable
A release can be challenged when it is:
- Overly broad or misleading
- Signed under pressure or misrepresentation
- Missing required statutory language
- Exchanged for severance the employee was already entitled to receive
#3 Non-Disparagement Clauses
How Non-Disparagement Language Can Limit Future Speech
These clauses often prohibit any statement that could “negatively reflect” on the employer. That can extend far beyond public comments to include:
- Conversations with coworkers
- Statements to recruiters
- Internal complaints after separation
Risks Tied to Vague or One-Sided Clauses
Many non-disparagement clauses are:
- Vague
- One-sided
- Backed by harsh penalty provisions
Why Mutual Non-Disparagement Matters
A mutual non-disparagement clause protects both sides. Without it, employees may be silenced while supervisors remain free to damage reputations behind the scenes.
Mutuality is often negotiable—and frequently overlooked.
Interaction With Government Reporting and Legal Rights
Non-disparagement clauses cannot lawfully prevent:
- Reporting discrimination or harassment
- Cooperating with government investigations
- Filing administrative charges
#4 Confidentiality Provisions
What Confidentiality Clauses Typically Cover
Most agreements restrict disclosure of:
- The terms of the severance agreement
- Internal company information
- Allegations or disputes leading to separation
How They Can Affect Future Job Searches
Overly broad confidentiality clauses can make it difficult to:
- Explain why you left your job
- Answer background-check questions
- Respond honestly in interviews
Overbroad Language That Creates Unnecessary Risk
Red flags include clauses that:
- Prohibit discussing “any matter” related to employment
- Lack exceptions for legal, tax, or family discussions
- Impose penalties for accidental disclosure
Carve-Outs Employees Should Request
Employees should consider negotiating carve-outs that allow disclosure:
- To spouses, attorneys, and financial advisors
- To prospective employers in neutral terms
- As required by law or government inquiry
#5 References & Employment Verification
Why References Are Often More Valuable Than Severance Pay
A few extra weeks of pay can disappear quickly. A damaged professional reputation can follow you for years.
Many severance disputes arise not because an employer refuses to give a reference—but because nothing in the agreement prevents quiet retaliation after separation. Silence can be just as harmful as a bad reference.
Neutral Reference Clauses vs. Agreed-Upon Language
Most employers offer a “neutral reference” clause, meaning they will confirm:
- Dates of employment
- Job title
- Final position held
In some cases, employees can negotiate agreed-upon reference language, especially when performance was strong. This can include confirmation of satisfactory performance or eligibility for rehire. While not always granted, it is often worth asking.
Internal Communications and HR Verification Limits
A good severance agreement should limit who can speak on the employer’s behalf. Without those limits, supervisors may provide off-the-record commentary that contradicts HR’s neutral stance.
Restricting references to HR only—and in writing—helps prevent mixed messaging.
Preventing Quiet Retaliation After Separation
Employees should be cautious of agreements that allow managers to speak “truthfully” without guardrails. That language can be used to justify negative commentary later.
Clear reference provisions are not about ego—they are about protecting future employment opportunities.
#6 Restrictive Covenants (Noncompete, Nonsolicit, NDA)
How Michigan Treats Noncompetes in Severance Agreements
Under Michigan law, noncompete agreements must be reasonable in duration, geographic scope, and type of work restricted. Severance agreements can:
- Reinforce existing restrictions
- Extend their duration
- Expand their scope
Signing a severance agreement can unintentionally reset the clock on limitations you were close to aging out of.
Why Severance Can Revive or Expand Old Restrictions
Some severance agreements incorporate prior agreements by reference. Others introduce brand-new restrictions in exchange for severance pay.
Employees often miss this because the language is buried—and the pressure to sign is high.
Red Flags in Nonsolicitation and Confidentiality Terms
Watch for clauses that:
- Bar contact with former coworkers indefinitely
- Prohibit working with clients you never serviced
- Define “confidential information” so broadly it includes general industry knowledge
When Restrictions Can Be Challenged or Narrowed
Restrictive covenants are negotiable. Courts scrutinize them closely, and employers know that overreaching terms may not hold up.
Narrowing scope, shortening duration, or clarifying exceptions can dramatically reduce post-employment risk.
#7 Benefits, COBRA, and Perks
Health Insurance Extensions vs. COBRA Subsidies
Some agreements extend active health coverage for a period of time. Others offer COBRA subsidies. These are not the same.
Key issues include:
- When coverage actually ends
- Who pays premiums—and for how long
- What happens if new employment begins mid-subsidy
Timing Gaps Employees Don’t Anticipate
Employees often assume benefits last until severance pay ends. That is not always true. Coverage can terminate weeks earlier unless the agreement states otherwise.
Always confirm the exact end date in writing.
Treatment of Bonuses, Commissions, and Equity
Severance agreements frequently exclude:
- Earned but unpaid bonuses
- Commissions in the pipeline
- Equity vesting
Retirement, Stock Options, and Vesting Issues
Employees should carefully review:
- 401(k) contribution timing
- Stock option exercise deadlines
- Vesting acceleration—or lack thereof
Don’t Trade Your Rights for Less Than They’re Worth
Severance agreements are not routine paperwork—they are legal documents with long-term consequences. Once signed, they can shape what claims you can bring, what you can say about your former employer, where you can work next, and even how easily you land your next job.
In Michigan, small changes in wording matter. A single sentence in a release, non-disparagement clause, or restrictive covenant can quietly limit future opportunities or eliminate claims you didn’t even realize you had. What looks like a “standard” agreement is almost always written to protect the company first.
Contact Batey Law
If you’ve been offered a severance agreement—or expect one in Q1—getting advice before you sign can protect both your finances and your future.
Batey Law Firm, PLLC
30200 Telegraph Rd., Suite 400
Bingham Farms, MI 48025