Employee Survival Guide® - An Employment Severance Agreement Explained in Detail

Starting point is 00:00:00 Welcome to another edition of the Employee Survival Guide, where you can learn everything your employer does not want you to know about and more. Now, here's attorney Mark Carey. Hey, it's Mark here and welcome to the next edition of the Employee Survival Guide. Today, we're going to talk about the Employment Sufferance Agreement explained in detail. Whether or not you use an employment attorney to review and negotiate your Employ severance agreement, you need to know the mechanics of the agreement. The following discussion will go into in-depth and explain the legal terms in an understandable way. If you need further information on severance negotiations, we have written about severance agreements and negotiations on our website at capclaw.com on various articles. on various articles. Generally, all severance agreements accomplish one task, paying employees to release their claims against the company in exchange for money and confidentiality. I have

Starting point is 00:00:51 seen thousands of these agreements in my 25 years of practicing employment law for both employees and executives. They are all relatively the same in their terms, but differ in their layout. Both law firms use the same template, so I see the same agreement used over and over again. The introductory paragraphs. The initial paragraphs of every severance agreement identify the parties to the agreement and include a couple of quote-unquote whereas provisions. The whereas paragraphs are prefatory and not required in any agreement. I usually strike them as irrelevant. The next paragraph is the non-admission provision. Every severance agreement includes a provision that the employer is not

Starting point is 00:01:30 making an admission of wrongdoing, even though the employer's actions were objectively discriminatory or wrongful. A non-admission provision is standard, but to the newly terminated employee, this provision seems awkwardly strange given the employee's experience leading up to the termination. The next paragraph is the show me the money provision or the consideration section. Well, for employees, this is the most important provision in the agreement, what they will be paid to release their valid claims against their employer. It is important to consider the following structure when drafting the consideration or payment provision. First, all money paid to an employee to settle an employment case is taxable as income. Second, you can split the settlement payment into parts to take advantage of tax planning.

Starting point is 00:02:13 The employer will also like this option, too, as they pay less in FICA. We normally allocate 60% as 1099 income and 40% as W-2 income. This allows you to receive a large lump sum as less taxes are deducted. You'll also want to modify your W-4 statement that you filed with your employer. This also affects the outcome. The employer will require you to indemnify the employer if and when the IRS challenges the settlement agreement on Form 1099 payments. In reality, I've never seen or heard the IRS conducting audits on settlement agreements anyway. The next paragraph is the attorney's fees are tax deductible against

Starting point is 00:02:51 gross income. Remember, if you spent hard-earned income on attorney's fees pursuing employment discrimination claims and received a judgment or a settlement in your favor, you can deduct the total amount of the attorney's fees against your gross income on your Form 1040. You can only take this deduction for the year in which the case settled or a judgment occurred. This is a crucial element to your decision to accept settlement, as most employers refuse to pay your legal fees to get a settlement. You are not alone if you never knew about this important IRS regulation. We regularly advise clients about this deduction, but it's recommended you speak to an accountant for tax

Starting point is 00:03:30 purposes. The next section, general release of all claims. When employers pay severance in exchange for a signed release, the general release provision is the primary provision most employers are concerned about. This provision effectively identifies every conceivable claim, known or unknown, that the employee has and then causes the employee to waive all such claims. Most severance agreements set forth a long laundry list of state and federal statutes that the employee is agreeing to waive claims. However, some claims can never be released in a written severance agreement, as state and federal laws prohibit such waiver of claims. For example, you cannot waive or release a workers' compensation claim, an unemployment insurance claim,

Starting point is 00:04:09 or claims made to a self-regulatory agency, such as the Securities and Exchange Commission, or the SEC. The next paragraph, challenge to agreement or enforceability. Most severance agreements contain a provision that if you seek to challenge the enforceability of the agreement, you have to return the money. That seems fair, and it is. But some employers also sneak in a penalty provision, sometimes known as a liquidated damage provision, in case the employee breaches the agreement for speaking out about the settlement. Employers often seek the total value of the settlement or some six-figure amount to protect the employer in case the departing employee goes rogue and publicly denounces the employer on

Starting point is 00:04:45 social media. This penalty provision often shows up in cases where there is a lot of bad blood spilled between the parties, particularly after a lawsuit is filed. We strongly advise clients against these draconian provisions and inform employers they are overreaching and are already protected by non-disparagement clauses and employee confidentiality agreements previously signed at the start of employment. The next paragraph. No other amounts are due.

Starting point is 00:05:09 Employers often place a redundant provision in the settlement agreement that the company does not owe the employee anything more. I say redundant because the release provision should have cover to every claim under the sun. You might want to strike that provision. Non-disparagement clauses. Every severance agreement contains a non-disparagement clause, but one only applicable to the employee and not to the employer. We advise clients to

Starting point is 00:05:30 include a mutual non-disparagement clause to be signed by the employer so it does not engage in blacklisting, which is a very real phenomenon. You will need to name specific individuals and managers when negotiating a mutual provision, as employers object to having to police their entire workforce. I personally never liked this response, but hey, these are called negotiations for a reason. You don't get all the things you want and must compromise or litigate. Next paragraph. References and Employment Verification.

Starting point is 00:06:00 Contrary to urban legend, employers do not provide references to departing employees. What they do provide is a 1-800 number to confirm your employment and title, but nothing more. If you have a good reference still within the company, I suggest you get that in writing or have the person contact your new employer directly. As an add-on, I was reading this morning in the Wall Street Journal that most employers, roughly about 60%, don't provide references at all. Next paragraph, no future employment. Most, if not all, severance agreements contain a provision that bars you from obtaining employment with a company or its subsidiaries in the future. Yes, this is perfectly legal. What the provision really accomplishes is that it prevents future liability by the company in the event you reapply for a position and claim you are somehow discriminated against for a failure to hire.

Starting point is 00:06:41 If you asserted claims against the company prior to termination or thereafter, be reasonable with yourself and do not expect the company will want to rehire you. Consider yourself canceled by your older employer. Next paragraph. Return of company property. Severance agreements can require you to return company property upon your termination or before you receive your severance payment. You would be surprised by the number of times I have to explain what is and is not company property to former and departing employees. I often use the example of company email. You know, the one containing your corporate email address. Well, the email and the piece of paper it's printed on do not belong to you.

Starting point is 00:07:16 So if an email does not belong to you, everything else the employer gave you to do your job also does not belong to you. My biggest concern arises when the employee tells me he wants to hold onto a hard drive he purchased that contains the company email list, client list, PowerPoint presentations, and any other corporate proprietary information. All the above company property must be returned to the employer, or you risk getting sued for theft, conversion of property, etc. You risk breaching the severance agreement and returning the money paid to you under that agreement. So return the company property. Next paragraph. Entire agreement, or what is called a full integration provision. This is a standard term in all well-drafted

Starting point is 00:07:56 employment agreements, including severance agreements. Essentially, the only terms of the agreement are those terms that set forth in the severance agreement. Any oral or written agreements made prior to the full execution of the severance agreement are non-binding and unenforceable. So be careful in your review of your case so that you do not hold expectations that are not realistic. You would need to have an employment attorney evaluate a prior oral agreement to determine if it is viable prior to signing the severance agreement. Some employers have promised severance prior to the severance agreement but then walk back

Starting point is 00:08:29 those promises. Again, an employment attorney can help you dissect this important legal issue. You may discover that your employer created a severance plan of one person, you. Next paragraph, non-competition and non-solicitation provisions. We often see employers sneaking into severance agreements brand new non-competition and non-solicitation provisions. We often see employers sneaking into severance agreements brand new non-competition and non-solicitation provisions where none previously existed during the employee's employment. We advise clients to strike these provisions and most employers do not raise the subject again. As employment lawyers, we see this tactic used every day, but you do not. This is one example where you should involve an employment attorney

Starting point is 00:09:03 to review your agreement, whether helping to negotiate it with the employer or from behind the scenes. We also see employers reaffirming the prior non-compete and non-solicitation provisions signed at the start of employment into the severance agreement. Again, we advise clients to challenge the inclusion and enforceability of these restricted covenants. Most employers will back away once they are met with a good argument as to why the prior agreements are unenforceable. Next paragraph. Agreement signed in counterparts. It is common to include a provision that parties to a severance agreement can sign a separate counterpart copies, each of which will be considered one fully executed agreement.

Starting point is 00:09:38 Counterparts are exchanged via email and facsimile as well as in person. Next paragraph. 21 days to sign or else. Don't panic if you have not signed your agreement within the 21 days as spelled out in the quote-unquote proposed agreement. There is no state or federal law that states you have 21 days or 45 days to sign the severance agreement. If the agreement is not signed by you, do you think you have an enforceable contract? No. So ignore the 21 or 45-day threat and just speak with an employment attorney to discover what claims or leverage you have to increase the severance amount. Oftentimes, consulting with an employment attorney will pay off in huge dividends to you in the form

Starting point is 00:10:15 of much higher settlement value at the conclusion of the negotiations. The difference or delta here is the employment attorney. She or he has a professional experience you lack, and it is the experience and knowledge of the law that is applied to your narrative to develop claims that stick against your employer. As you read above, your legal fees are 100% tax deductible, so why wouldn't you explore your potential claims with an employment attorney? Next provision, confidentiality provisions. I saved the best for last. Of course, everyone knows that you give up your legal rights in a severance agreement, but many do not know. You also agree to a lifetime of silence. No,

Starting point is 00:10:51 you cannot write a book about your horrible employer if you agree to take their blood bunny. But the reason why I saved this topic for last is because of a recent social and legal developments that have occurred. The hashtag MeToo event and the aftermath that followed brought with it a new understanding about confidentiality agreements, also called non-disclosure agreements or NDAs. The social issue that has arisen is that we are no longer comfortable letting the bad actors of the world get away with their misdeeds, in particular any misdeed of a sexual nature, regardless of the gender or sexual orientation, by covering them up with confidential settlement agreements.

Starting point is 00:11:28 Think of Harvey Weinstein or the former Met Opera conductor James Levine. Rest in peace. For decades and continuing today, every single employer requires the departing employee sign a confidentiality provision in a severance agreement in exchange for severance payments. This is the default rule followed by all employers. This default rule has only caused more employees to be harmed by the same bad actors who caused the previous cases that eventually settled. Many states like New York have created statutes requiring a voluntary confidentiality agreement separate and apart from the settlement agreement. While this sounds like a good idea, it has already been abused by

Starting point is 00:11:59 employers. Most employers will now apportion a part of the settlement payment to be in exchange for a signed confidentiality agreement. Simply, the legislators were lobbied by employers and should have banned the use of settlement dollars in exchange for signed confidentiality agreements. The bottom line for you is this. We are just not at the social pivot point for you to resist the use of confidentiality provisions in settlement agreements. So don't waste your time arguing about this issue with your former employer. But one day, confidentiality provisions and employee severance agreements will be banned as a matter of statute and public policy. This is a non-political issue, as both liberals and conservatives use confidentiality agreements

Starting point is 00:12:36 to conceal the illegal misdeeds of their managers and employees. If you need more information about this podcast and want to discuss your severance agreement with an employment attorney, please call Caring Associates PC at 203-255-4150 or email to info at capclaw.com. Thank you and be safe and well.

Employee Survival Guide® - An Employment Severance Agreement Explained in Detail

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