If you have recently been laid off or are facing termination, your employer may offer a severance agreement. While it might seem like a straightforward way to secure compensation and move on, signing a severance agreement without fully understanding its terms can have long-term legal and financial consequences.
The Kentucky employment lawyers at Abney Law know that termination from your job can be stressful, frightening, and difficult. We are here to help. Our team can protect your legal rights and help you know whether the severance agreement is right for you.
What Is a Severance Agreement?
A severance agreement is a legally binding contract between an employer and an employee that outlines the terms of separation. In exchange for severance pay or other benefits, the employee typically agrees to waive certain rights, most commonly the right to sue the employer.
These agreements often include:
- Severance pay (lump sum or continued salary)
- Health insurance continuation
- Outplacement services
- Non-disparagement clauses
- Confidentiality provisions
- Non-compete or non-solicitation clauses
- Waiver of legal claims
You May Be Waiving Important Legal Rights
One of the most critical aspects of a severance agreement is the waiver of claims. By signing, you may be giving up your right to pursue legal action for:
- Wrongful termination
- Discrimination (based on race, gender, age, disability, etc.)
- Harassment
- Retaliation
- Wage and hour violations
If you believe your termination was unlawful or suspect workplace misconduct, consult a Kentucky employment attorney before signing. Once you waive your rights, you may lose the ability to seek legal remedies.
You Have Time to Review the Severance Agreement
Employees are not required to sign a severance agreement immediately. In fact, under federal law, individuals over 40 must be given at least 21 days to consider the agreement if it involves a waiver of age discrimination claims under the Older Workers Benefit Protection Act (OWBPA). You may also have seven days after signing to revoke the agreement.
Use this time to:
- Review the terms carefully
- Consult legal counsel
- Negotiate better terms if appropriate
Severance Pay Is Negotiable
Severance pay is not guaranteed unless specified in an employment contract or company policy. However, employers often offer it to reduce legal risk or maintain goodwill. You may be able to negotiate:
- A higher severance amount
- Extended health benefits
- Positive references
- Removal or modification of restrictive clauses
Negotiation is especially important if you have leverage, such as a long tenure, strong performance record, or potential legal claims.
Watch for Restrictive Covenants in the Severance Agreement
Many severance agreements include post-employment restrictions that can affect your future job prospects. These may include:
- Non-Compete Clauses: Limit your ability to work for competitors
- Non-solicitation Clauses: Prevent you from contacting former clients or colleagues
- Confidentiality Clauses: Prohibit disclosure of company information
These provisions can be enforceable depending on your jurisdiction. An attorney can help assess whether they are overly broad or unreasonable.
Tax Implications Matter
Severance payments are considered taxable income. Depending on the amount and timing, they may push you into a higher tax bracket. You may also owe taxes on other benefits, such as stock options or bonuses included in the agreement.
Consult a tax advisor to understand how the severance package affects your financial situation and whether any planning strategies can reduce your tax burden.
Legal Review Is Strongly Recommended
Before signing any severance agreement, have it reviewed by an employment attorney. A legal professional can:
- Identify problematic clauses
- Explain your rights and obligations
- Negotiate more favorable terms
- Ensure compliance with state and federal laws
Consult a Dedicated Kentucky Workplace Termination Lawyer Before You Sign a Severance Agreement
A severance agreement is more than just a paycheck. It is a legal contract with lasting implications. Take the time to understand what you are signing, protect your rights, and seek professional guidance before making any decisions.
Let the experienced employment discrimination attorneys at Abney Law review your case. We stand ready to fight for you. Contact us today for a consultation.