You’ve just had a random meeting added to your calendar with no description. It’s from HR and that skip-level manager you may (or may not) have seen since last quarter. WTH!? Since the meeting landed on your calendar, you’ve also noticed that your log-in credentials aren’t working anymore. You wonder what’s going on? So you message your coworker, who also just got a random 15-minute calendar invite. Are y’all getting laid off? If so, will there be a severance? What is going on!?
This can’t be good.
You join the meeting and between hems and haws from these strangers you hear phrases like “reorgs” and “difficult decisions” and “eliminate positions” and “including yours”.
Even though it’s been slow, you can’t believe that they let you go.
They close the meeting by offering you a severance package and highlighting terms they think are important—the severance payment and when your health insurance ends.
But your severance agreement isn’t just about how much money you’re getting (although that’s important) or if you’ll get to stick with the same doctor you’ve been seeing for awhile; it’s also about easing your transition from one opportunity to the next. That’s why it’s important to make sure the terms protect you and give you the flexibility you need to move forward.
With that in mind, there are some red flags you should be on high alert for when you’re offered a severance package.
🚩A Rush to Sign
First up: a rush to sign the severance agreement. The absolute worst time to sign any legally-binding document is when you’re experiencing all the emotions that come with being let go—shock, confusion, anxiety, disappointment and maybe even anger. You don’t have to sign anything when you’re laid off. Your manager or the HR rep may hand you some documents and insist that you to sign them during the layoff meeting, but carefully read any documents they give you and make sure you fully understand them before deciding if you want to sign them.
In most cases, if you are 40 years of age or older at the time of your layoff, the Older Worker Benefit Protection Act (or the OWBPA) requires your employer to give you at least 21 calendar days to decide if you will sign away your rights in a severance agreement. If your layoff was part of a large restructuring or downsizing, then they have to give you even more time—45 calendar days—to review the agreement.
Still, if you’re under 40, most employers will give you a reasonable time to review the agreement, you just may have to ask for it. Anything less than a week is a huge red flag and often signals that the company is hoping you’ll overlook important details.
🚩Restrictions on What You Can and Can’t Do After Separation
Restrictive covenants are often buried in the fine print of severance agreements. These are little promises in the agreement that could have BIG consequences for your future (if you sign it). For example, there may be a non-disparagement clause that restricts what you can say (in person and on social media) about the company, a non-solicitation clause that says you can’t reach out to former customers or colleagues, or a non-compete clause that limits where you can work for a period of time after you leave the company. They often look like this:
It’s important to carefully review any restrictive covenants and make sure you fully understand what they mean before you sign. If the restrictions limit where you can work, the severance payment ought to be large enough to support you during the time that you’re expected to put your career on hold. Leaving money on the table might be hard in the short-term, especially now that you may not have a steady paycheck coming in, but in many cases, it may be smarter to walk away without limiting your independence or flexibility in the long term.
🚩A Promise to Pay You What They Already Owe
If the agreement promises to pay you for things the company is already obligated to pay—like earned but unpaid commissions or unused PTO—that’s a huge a red flag. These aren’t additional benefits or compensation in exchange for your severance; they’re simply payments that the company likely already owes you. Make sure the severance agreement doesn’t lump these payments into the severance package to make it look more enticing, because they’re not. More often than not, you’re entitled to those things even if you don’t sign the agreement.
🚩A Lowball Offer
A typical severance is usually based on a formula that takes into account how long you’ve worked for the company and your salary. For most employees in Texas, it will be about two weeks of pay for every year of service. Typical severance packages sometimes include COBRA payments too. Executives, senior leaders, and managers are often offered a bit more. If you’re offered less than two weeks of severance pay per year of service, that’s usually a sign that there may be other issues with the contract.
A good severance package should make your career transition smoother, not harder. If you’ve been laid off and offered a severance package you don’t understand or that has any of these red flags, contact an employment lawyer for help. Our severance agreement attorney will review your agreement line-by-line, point out problematic terms, and advise you how to negotiate for better terms on your own; or, if you prefer, we also will negotiate your severance package directly with your employer on your behalf.