Home » Commentary » The Parts of Severance Agreement that Almost Every Employee Asks Us About

Amanda DeMatteis: Hi, Josh.

Josh Goodbaum: Hi, Amanda. What are we talking about today?

DeMatteis: I thought we would talk about severance agreements. We get a lot of calls from employees to review a severance agreement that their former employer has offered them. So, this is something that we have a lot of experience in.

Now, most folks want to know, “Hey, can I get more money? Is there a way for me to sweeten this deal?” And that answer is very individual, right? We need to hear the facts of the particular situation. We need to get an understanding of what was going on there to be able to give the best advice on how we can get more money, if we can.

But there are also a number of other clauses in severance agreements where our clients almost universally respond “Why is this included here?” or “What does this mean?” So, I thought we could walk through some of these very common and very misunderstood severance terms and play a little game of: I describe the clause, and you tell our viewers what it means. Are you up for that?

Goodbaum: Absolutely. Let’s do it.

DeMatteis: The first is that the employee has “no legal entitlement to this severance over and above what they otherwise earned while working for this employer,” and a lot of times people will say to us, “Well, wait a minute, of course I’m entitled to my severance.” What do you say to them?

Goodbaum: Amanda, this confuses a lot of people. It has to do with a legal concept called consideration. Consideration is required in order for a contract to be enforceable. Each side has to give something, and each side has to get something. And if your employer is just giving you something you’re already entitled to, then the contract is not enforceable. That’s why the contract says you’re getting something you “wouldn’t otherwise be entitled to.”

If, for example, your employer was paying you your wages for the work you did last week and nothing else, that’s not a severance that’s going to make the severance agreement enforceable. They have to be giving you something extra – something beyond what you were already entitled to. Then they recite those magic words in the contract in order to make clear to everybody that there was consideration for the agreement and therefore the contract is an enforceable one.

DeMatteis: Number two – This one really ruffles people’s feathers. A no-rehire clause. The employer is saying to this former employee who is signing this, “We will not rehire you again ever in the future. In fact, we won’t even review your application if you make one.” What do you have to say about that?

Goodbaum: Yes, some people really take offense at this. Other people think, “I don’t know why I’d ever want to go work there again anyway.” So, it sort of varies by our client. But what I say to the clients who are upset about this is that this actually has nothing to do with you. It’s in almost every employment separation agreement.

The reason is that employers are concerned that you will bring a claim against them, settle that claim, and then start applying for jobs in the future, and when you don’t get those jobs, sue for retaliation. And because you cannot make a contract that waives your future claims for something that happens in the future (such as a job application rejection), the only way for the employer to defend itself against that very unlikely scenario is for you to agree now that you are not going to apply for those jobs in the future.

What I tell my clients is: Your employer can always change their mind. If leadership changes, if ownership changes, and they decide they really want you back, they can waive this clause, and they can invite you to apply. They can offer you a job. There’s no reason that this would be a barrier to your future employment at the company if the company and you want to make that happen at some future point in time.

DeMatteis: Number three – These severance agreements include a number of promises that the employee is making. This might include confidentiality, non-disparagement, or the release of claims. A lot of employees will ask, “Well, why aren’t these promises mutual? Why isn’t there reciprocity in these severance agreements?” What do you say to them?

Goodbaum: There’s a short answer and a long answer, and then a caveat.

The short answer for why severance agreement promises often aren’t mutual is that you’re not paying them any money; they’re paying you. So, they get some things, and you get money. That’s the fundamental deal.

The longer reason is that the company is not in a position to promise what everybody who works for the company will do, in most circumstances. For example, if they’re asking you not to badmouth the company, you might say, “Well, why aren’t they promising that the company won’t badmouth me?” Well, because the company might have dozens or hundreds or thousands or tens of thousands of employees, and the company can’t possibly promise that all of those employees are going to say or not say something about you in the future.

There is a caveat here, which is that I think one clause in the contract absolutely should be mutual, and that is a clause about attorneys’ fees. If there is any alleged breach of the contract, and one party is going to get attorneys’ fees in a dispute about that breach, that should be mutual. These clauses should say, “In any dispute concerning an alleged breach of this agreement, the prevailing party shall be entitled to its attorneys’ fees and costs.”

That is a clause that really should be mutual, but that doesn’t mean that every clause in all severance agreements should be mutual. In all reality, they probably shouldn’t be.

DeMatteis: Thank you so much, Josh. This was fun.

Remember, severance agreements are contracts. We always recommend that you sit down and review them in their totality with an employment lawyer so they can tackle these issues and also ones that may be individual to you and the severance agreement that your former employer is asking you to sign.

Thanks so much for watching. We’ll see you next time.

About the Author

Client Experiences

Advocating for Employees since 1977