Should You Sign a Release in Exchange for Severance Pay?

Q. I’m being let go from my job, and my employer has offered me severance pay in exchange for signing a release. What are my rights?

Most employees who work in New York are considered to be “at will” employees. There are, of course, exceptions – for example, employees who have a contract of employment for a fixed term, employees who have statutory job protection rights such as tenured teachers or civil service employees, or employees covered under a collective bargaining agreement requiring just cause for dismissal. Almost everyone else, however, is presumed to have “at will” employment, which means that either the employer or the employee is free to terminate the employment relationship at any time and for any reason – or for no reason at all.

While an employer is commonly said to enjoy broad discretion to terminate an at will employee for “any” reason, the law does impose some limitations on the exercise of that discretion. For example, an employer covered by Federal and State civil rights laws generally may not terminate an employee because of their race, gender, age, disability, pregnancy, or a variety of other protected classifications. Employers who take adverse action against an employee – including termination or layoff — based on one of these protected classifications may find themselves on the receiving end of a lawsuit for damages.

Severance Pay Is Not a Right

An employer is under no legal obligation to provide – and an employee has no legal right to demand – the payment of severance when the employer terminates an at will employment relationship. Many employers will, nevertheless, offer some form of severance, usually calculated as a certain number of weeks of pay for each year of service. Some employers who offer severance do so in the interest of helping a long term employee weather a period of prospective unemployment until they can secure a new job elsewhere. Other employers, however, do so for more self-interested reasons – offering severance as a “carrot” to induce a terminated employee to sign a release of possible claims against the employer.

In some cases, the employer may be worried about a specific possible claim – for example, when terminating an under-performing employee who has just recently returned from a disability leave. In other cases the employer may not be worried about a particular claim, but recognizes that defending even a meritless discrimination claim – should one be filed by the terminated employee months or even years later – can be very expensive and time consuming. By obtaining a broad release from the employee in exchange for the payment of a fixed severance, the employer is guaranteeing that it will not face a claim by the employee down the road, however likely or unlikely that may be.

A terminated employee offered severance in exchange for signing a release must carefully weigh the benefit of the severance pay (which may be of great, immediate benefit depending on the employee’s financial situation) against the loss of potential claims which will result from signing the release. An employee having no potential claims against his or her employer is obviously not losing much by signing a release. On the other hand, an employee who has or may have a potentially valuable claim against the employer – one which may greatly exceed the value of the severance being offered – will lose the opportunity to pursue that claim by signing the release and accepting the severance.

Do You Have a Claim Against Your Former Employer?

Of course, it may be difficult for the employee to know whether or not he or she may have a potential claim against the employer. It is therefore usually advisable for an employee to consult with an employment lawyer in Albany before signing off on a severance agreement which contains a release of claims. Most employers afford employees an opportunity to obtain independent legal advice before they decide to accept or reject a severance offer, and in fact a waiver of certain claims may be unenforceable unless the employee has first been provided a reasonable period of time to decide whether or not to accept a severance offer.

In addition to a release, some severance agreements may also include other provisions – for example, an agreement that the employee will not publicly “disparage” the employer, or an agreement that the employee will not accept a job in competition with the employer’s business. As with any other contractual agreement, it is important that any severance agreement be read carefully so that the employee knows exactly what terms he or she is accepting. Again, consultation with an attorney is usually a good idea. An attorney can make sure that the employee at least understands everything contained in the severance agreement and, if appropriate, may be able to negotiate changes to the agreement with the employer or its legal counsel.

Do you think you might have a claim against your employer? Schedule a consultation with our employment lawyers in Albany. It’s free and confidential. Contact us by giving us a call or sending us a message through our website.