Severance Agreements

Your company is letting you go.

You’ve been given a severance agreement to review and sign. This is a legal document with legal consequences.

You’re probably facing job uncertainty right now  – if you don’t have another job lined up, then you don’t know how long you’ll be out of work.

You may be upset about this news, that perhaps came out of nowhere.

You may not even know why you’re really being let go.

Do you sign it or not? I think a FAQ based on how Texas handles severance agreements is the best way to get you up to speed on this.

What is severance pay?

It’s typically an amount of money that a company pays you to sign a severance agreement – typically an agreement to waive your right to sue the company for most reasons.

Does a company have to pay me severance pay if they let me go?

No, not unless there’s a specific agreement to do so. It’s something that is customarily done in certain industries and/or under certain circumstances, but ultimately it’s simply a voluntary “deal” between the company and the exiting employee. The company says, essentially, “We’ll pay you X dollars if you’ll, sort of, ‘go away.’” And if the employee says “OK,” the two sides have a deal. If the company chooses not to make the offer, they save the severance payment but they take the risk of getting sued if you have a claim against the company.

Is the company giving me enough severance pay?

Did you sign the severance agreement? If so, then yes, it was enough money.

It’s a crude way to look at it, but ultimately, it’s simply a business deal. Now, whether it’s a good deal for you depends on whether you knew the value of the claims you were waiving when you signed the agreement. That’s one of the reasons that might lead someone to consult with a board-certified employee rights attorney before signing a severance agreement.

And while the severance pay is usually described in terms of your current pay (for example, “one month of salary”), that’s really just a convenient way to come up with an amount of money to pay you to go away. It’s not salary, it’s a bag of money being paid to you to “go away,” that the company may happen to process through their payroll system like a regular salary payment.

Always keep in mind that in any tangible job decision that affects your pay, benefits or status, a company cannot treat you worse on the basis of your sex, race, color, national origin, religion, disability, or – in most but not all cases – your age if you’re over 40.

Are these severance agreements enforceable?

Yes, in most cases. Again, it all depends on the language in the Agreement and the circumstances under which it was signed, but a severance agreement that meets basic criteria can certainly be enforceable in Texas.

What rights am I waiving?

While it always depends on exactly what’s written in the agreement, a typical severance agreement will have you waive pretty much every law by which an employee might sue a company, as long as the law allows an employee to waive such a claim in a severance agreement.

What rights can I not waive, by law?

In Texas, some of the rights you usually cannot waive are:

• Your right to obtain unemployment benefits (presuming you’re eligible).
• Your right to file or continue to pursue a workers’ compensation claim.
• Your right to file a charge of discrimination or retaliation with the Equal Employment Opportunity Commission (although the severance agreement can legally require you to waive any claim for money through your complaint).
• Your right to file a charge of unfair labor practices with the National Labor Relations Board.
• While the law is not 100% black-and-white at the moment, our courts will generally not allow you to have waived your rights under federal law to pursue unpaid overtime pay or minimum wage violations through a typical severance agreement.
• Claims that occur after you sign the agreement (“future claims”). While this is a rare situation (since both sides are going their separate ways at this point), one example where this could occur is if this previous employer unlawfully interferes with a future job offer to you from another employer.

Why is my company only paying me __ weeks of severance?

I don’t know. That’s their business decision. The average company’s goal with severance pay is to offer just enough money to encourage you to sign it. Some may be more charitable – it’s just about the dynamics and culture of the company and its management – and perhaps the financial health of the company at that time. Sometimes a client I am consulting with will tell me that ___ weeks or months is “the industry standard.” However, while there may be some trends, it all depends on the specific company you’re dealing with and their circumstances and culture.

When is it not enforceable?

In some of the following situations, some or all of the severance agreement may not be enforceable:

• If the only value being given to you as “severance pay” is money that you are already owed by law. For instance, a final paycheck, or unused vacation pay that should already be paid out to you according to a written policy or agreement.
• If you can prove that company used “coercion” to force you to sign the agreement, or that you signed it under “duress.” These words have legal meanings that may not apply to your situation, even if you felt coerced or that you were under duress. Talk to a lawyer.
• Your age discrimination claims may not be waived if you are over 40, the company is covered by the Age Discrimination in Employment Act, and they fail to include specific language and a specific review period in the agreement. (The part of the ADEA that requires this specific language is the Older Workers Benefit Protection Act.)

There are other situations as well – talk to a lawyer.

Can I negotiate the terms of the agreement they’ve given me to sign?

That depends on a lot of factors and considerations.

• What are the circumstances surrounding your exit? Are they forcing you out because they claim you did something wrong? Are you simply part of a group layoff?
• How big is the company? As a general rule, the bigger the company, the less likely they are to change the terms of a standard severance agreement that has already been through substantial corporate attorney review and approval. Smaller companies may have more flexibility. Those are generalities based on experience – it varies.
• How big are your requested changes? For instance, are you simply wanting to extend your health benefits for another month, or do you want to demand substantially more money than they are offering?
• What legal claims, if any, do you have against the company? How strong are those claims? If you have an employment attorney, does the company know this? (Those claims are your leverage. If you have an experienced employee rights attorney representing you, it may lead the company to have more concern that you could follow through with a lawsuit.)

There are a lot of other factors that can affect whether you can and/or should try to negotiate any terms of the agreement that the company wants you to sign. This is another “talk to an attorney” situation.

When can I apply for unemployment? 

Sometimes right away, but again, it depends on your specific dates of employment and the nature of the severance payment. And how you handle the severance payment with the Texas Workforce Commission can affect whether it sets off a red flag later as to fraud – when it looks like you were still working for the employer while collecting unemployment. If it’s a true severance payment in exchange for waiving rights to sue the company, then it’s not fraud, but it’s still good to avoid even the opening of a fraud investigation against you.

And whatever you do, don’t assume you can’t get unemployment benefits until after the period represented by your severance pay (for example, “six weeks’ pay”), and potentially miss many weeks of additional money in your pocket. My firm has often helped our client make up our modest severance agreement review fee simply with our advice on unemployment benefits. As in – talking to us about your severance agreement can potentially make you money. (Kerry O’Brien is a former unemployment appeals hearing officer with the Texas Workforce Commission.)

Keep in mind, also, that if the employer doesn’t terminate you or force you to resign, but instead gives you an option to resign (where you could genuinely say “no thank you” and keep working), it can affect your entitlement to unemployment benefits if you choose the resignation option. This comes up most often with mass layoffs at large companies, where a class of employees may be given the option to take a severance package now, or continue to work. You may not be entitled to unemployment even if the company in writing agrees not to contest your unemployment benefits claim, because it’s the TWC’s decision based on unemployment law. Talk to a lawyer about this situation.

How much will it cost me to get the O’Brien Law Firm to review my severance agreement and talk with me about it? 

The typical severance agreement review costs a flat fee of one hour of the attorney’s time, $400. We set these up remotely, review your severance agreement and any other relevant documents, and hold a 45-minute phone conference to:

• Advise you on your rights and obligations under the agreement.
• Point out any language in the agreement draft that is of concern, legally.
• Discuss the circumstances of your exit to determine if you have any legal claims against the company and how strong those claims may be (always with only the information we have at that time).
• Discuss the possibility of negotiating any terms and if so, how to go about that.
• Discuss the TWC unemployment and fraud-avoidance issues.
• And most importantly – answer any questions that you have.

I’ve got a deadline on this!

Absolutely. Our turnaround time, from you first contacting our law firm to us finishing our review and phone conference with you, is usually three business days or less, as long as a substantial deadline or court event (like a trial) isn’t taking place that week.

And if you do have a valuable claim that you want to pursue against the company, you’re already talking to the right law firm for that.

We make it easy for you to connect with us so that we can serve you quickly. Just fill out the form below and let us know that you have a severance agreement that needs a review. We’ll respond promptly. Or keep scrolling down to see some Severance Agreement FAQs.

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Additional Frequently Asked Questions on Severance Agreements

1. They want me to sign a severance agreement. I’m still owed expense reimbursements. Will they pay me those, too?

A proposed severance agreement may include language that states that you are agreeing that the money they pay you as severance pay is all of the money that they owe you. You are essentially agreeing there are no other debts that the company owes you, including expense reimbursements. Therefore, before you sign that agreement, you need to get clarity with your HR Department or manager about expenses. Most times, the language is standard and wasn’t meant to screw you out of your expense reimbursements, so I have often found that once the HR rep emails back and says “we will still include your expense reimbursements in your final paycheck” or something like that, you can typically rely on that without needing a change in the agreement. Typically. And if the HR Rep or manager won’t give you assurance in writing, that’s a red flag.

2. In a severance agreement, they want me to sign a non-disparagement clause. What about them agreeing not to disparage me?

Click here for extensive general information about non-disparagement clauses in Texas severance agreements.

3. What happens if I sign the severance agreement, but down the road, someone at the company gives me inside information that I was terminated for an illegal reason?

You’re probably stuck with having waived your claims. That’s the hard part about severance agreements – you’re having to make a decision on waiving potential legal claims based only on what you know right at the end of your employment. There really isn’t a meaningful opportunity to do a full investigation, so it’s a risk assessment. That’s another reason why consulting with a knowledgeable employment attorney can be helpful before you sign it – his or her experience can really go along way to determining the likelihood of there being a claim if you had access to all of the information that you needed to review first. That way, if you do decide to sign it, you can be more at peace with the decision.