Receiving a severance agreement after losing a job can feel like a lifeline. It can offer some financial cushion during a stressful time. But before you sign, it’s critical to pause and understand exactly what doing so entails.
A severance package is a trade. Your employer offers you pay, and in return, you agree to give up certain legal rights such as pursuing a lawsuit against them. Carefully reviewing the document may help you spot potential issues early, and properly decide whether to sign, renegotiate your package or pursue a legal claim. Here are five things that might deserve a closer look.
1. Uses unclear language that can result in waiving too many rights
Most severance packages will ask you to give up your right to sue the company. A potential red flag, however, is when this language seems extremely broad. For instance, the document might try to make you give up claims you are not even aware of. It might also incorrectly suggest you are giving up rights that, by law, you cannot give up, such as your ability to file a charge with the Equal Employment Opportunity Commission (EEOC).
2. Contains a very restrictive non-compete clause
A noncompete clause is a provision that obliges you to not work for a competing business. Rhode Island generally restricts enforcing noncompetition agreements against many workers, like those earning lower wages, non-exempt employees or interns.
3. Includes unclear payment and benefit terms
The agreement should clearly state the exact amount that you will be paid and when you will receive it. However, ambiguous language can be concerning. The document should also have clear information about benefits, especially health insurance.
It is also helpful to know that, under Rhode Island rules, receiving severance pay can often make you ineligible for unemployment benefits for the weeks the pay covers.
4. Enforces a very short deadline
Your employer should provide you with a reasonable amount of time to review the document. Federal law actually provides specific protections for employees who are 40 years old or older. This law gives you at least 21 days to consider the agreement. If the offer is part of a group layoff, that period extends to 45 days. If you are considering signing, you also have a seven day period to change your mind and revoke your signature.
5. Incorporates vague confidentiality rules
These agreements often include confidentiality rules. They may also include a “non-disparagement” clause, which creates a binding term for a worker not to speak negatively about the company. Clauses that are so broad that they prevent you from discussing the agreement with a spouse or a financial advisor can be a red flag. Vague wording might also make you unsure if you can speak truthfully about your job experience in the future.
Understanding what you are signing
A severance agreement is generally a final arrangement. Once you sign it, you are almost always bound by its terms. It may be worth considering to consult a professional familiar with employment law. They can explain how the terms in your specific agreement might affect your employment rights. Taking time to understand every part of the document may help you feel more confident as you move on to your next opportunity.