The Most Common Mistakes in Severance Agreement Matters

On Behalf of | Aug 15, 2023 | Common Mistakes

Dealing with severance agreements can be complex, and there are several common mistakes that individuals, employers, and legal advisors often make. Here are some of the most common mistakes:

Failing to Seek Legal Advice: Both employers and employees may fail to consult with legal counsel before negotiating or signing a severance agreement. An experienced attorney can help ensure the terms are fair, legally compliant, and in the best interest of the individual.

Inadequate Consideration: Severance agreements should offer something of value in exchange for the employee’s agreement to waive certain rights, such as additional pay, continued benefits, career transition assistance and other remedies. Failing to provide sufficient consideration can render the agreement unenforceable.

Not Understanding Terms and Waivers: Employees may not fully comprehend the rights they are waiving by signing the agreement, such as waiving the right to sue for wrongful termination. Clear explanations of the implications are crucial. Both State and Federal laws are implicated, especially as they relate to benefits.

Missing Key Provisions: Employers and employees alike might overlook including important provisions, such as confidentiality clauses, non-disparagement clauses, and non-compete clauses. These provisions can protect the interests of both parties.

Non-Compliance with Legal Requirements: Severance agreements must comply with federal, state, and local employment laws. Failing to meet legal requirements can result in challenges to the agreement’s validity.

Coercion and Duress: If an employee feels pressured to sign a severance agreement due to threats or intimidation, the agreement could be challenged in court. Both parties should engage in the negotiation process in good faith.

Not Considering Tax Implications: Severance payments can have tax consequences. Both parties should be aware of the tax implications of the severance package and consult tax professionals if needed.

Discriminatory Practices: If a severance agreement disproportionately affects certain protected groups (e.g., based on age, gender, or race), it could lead to legal challenges and claims of discrimination.

Failure to Revise Agreements: Employment laws and regulations can change over time. Using outdated or generic templates for severance agreements without reviewing and updating them can lead to legal issues.

Rushed Decision-Making: Making hasty decisions during a stressful time can result in unfavorable terms. Both parties should take the time to carefully review and negotiate the agreement to ensure it meets their needs and expectations.

One-Size-Fits-All Approach: Severance agreements should be tailored to the specific circumstances of the employee and the company. Using a generic template without considering individual circumstances can lead to problems.

Ambiguous Language: Unclear or vague language in a severance agreement can lead to disputes down the line. The terms should be written in a way that is easy to understand and leaves as little room for misinterpretation as possible.

To avoid these common mistakes, it’s advisable for both employers and employees to seek legal guidance, communicate openly, and carefully review all aspects of the severance agreement before finalizing it. You should involve an employment law practitioner.