New York Severance Agreements

Whether your position is being eliminated in a corporate downsizing, or you are getting laid off or fired for another reason, at some point in your life you may find yourself reviewing a severance agreement. Also referred to as a “separation agreement,” this legally binding contract is often provided to employees following (or immediately preceding) an unwanted job termination. In some cases, employers may also offer a severance agreement if you quit your job because of discrimination and/or retaliation.

Employees often incorrectly assume that signing a severance agreement is a standard obligation required of them as part of their job termination. In other cases, an employee incorrectly assumes that signing the severance agreement is in their best interests. In most cases, neither is true. The reality is that employers typically use severance agreements to protect themselves from future lawsuits, and to obtain other important concessions from terminated employees.

It is key to remember that there is no requirement that you sign a severance agreement just because your former – or soon-to-be former – employer provided it to you. It may or may not be beneficial to you, depending upon the amount of the severance payment and its other terms and conditions, as well as the circumstances surrounding your termination and whether any discriminatory or retaliatory actions took place while you were employed.

Before signing a separation agreement, have it reviewed by an experienced attorney that can help you understand its terms and conditions. If you believe there is a possibility that employment discrimination or retaliation lead to your termination, it is especially important to talk to a severance agreement lawyer who is familiar with the various laws that protect employees, including the New York discrimination and whistleblower laws.

Frequently Asked Questions: Severance Agreements in New York

Is severance pay by my employer mandatory in New York?

No. While some businesses in New York offer severance packages to their employees upon termination, a severance payment is generally not required unless an employee’s employment contract, or the employer’s policies and procedures, specifically call for a severance payment upon termination.

New York law does not contain any requirements that severance be paid upon a termination of employment, even if the termination is without cause. As a result, employees may at first be happy, even relieved, to be offered a severance package upon termination. However, an employer’s offer of a severance payment does not mean employees should blindly sign a severance agreement without understanding its terms and future implications. Remember, employers do not offer severance pay to be nice. Rather, they benefit greatly from the peace of mind that is attained by a full release of all claims by the terminated employee. This is especially important to an employer if you made allegations of discrimination or retaliation by your co-workers or managers.

Should I sign a severance agreement?

Whether you are fired or choose to leave an employer on your own accord, when workplace discrimination and acts of retaliation have occurred, employers are rightfully concerned that the departing employee may decide to exercise their legal rights to file a lawsuit against them. To mitigate this risk, employers often use severance agreements as a means of preventing an employee from suing them in the future. If discrimination or retaliation has occurred, it is especially important to consult with an experienced attorney before signing a severance agreement.

What are the Standard Terms of a Severance Agreement?

Severance agreements (sometimes called “separation agreements”) typically grant a payment equivalent to the employee’s pay for a certain number of weeks or months. It may also provide for additional benefits, such as outplacement services, payment of COBRA health insurance premiums for a period of time, or accelerated stock vesting. However, most severance agreements also contain a number of important legal restrictions which can substantially hamper an employee’s rights, and should be fully understood before signing. This includes a full release of all future claims and lawsuits against the former employer – meaning the terminated employee can never sue their former employer in court if any wrongdoing occurred. In addition, the agreement typically contains confidentiality provisions, and often will include non-compete and/or non-solicitation restrictions that prevent an individual from working in their industry or for certain competitors, or from soliciting company clients and/or employees in the future.

How long do I have to review a severance package?

Employers will often provide a final date to sign a severance agreement before it is revoked and becomes null and void. In addition, employees over the age of 40 are entitled to a 21-day window in which to review their severance package if they were terminated as an individual, rather than as part of a group lay-off. If the over-40 employee’s termination was part of a group layoff, that timeframe is increased to 45 days. Employees over 40 also have at least 7 days after signing a severance agreement to change their minds by providing notice of revocation within that time period.

What are the key concepts and risks to consider when deciding to sign a severance agreement?

By signing a severance agreement, you fully waive the right to sue your employer for wrongful termination or for any other unlawful activities that occurred at your job while you were employed. This could be important if your employer fired you after you requested a reasonable accommodation for a disability, or soon after reporting racist conduct or sexual harassment by a co-worker, supervisor, or manager, or after you complained about COVID policies and practices that put the public’s health and safety at risk. Depending on the circumstances, you may decide that the offered severance package is unfairly low and unreasonable in light of the events surrounding your termination and/or any discriminatory or retaliatory conduct that you may have experienced while employed. Therefore, before waiving these important rights, it is recommended that you consult with an attorney who can evaluate the situation and advise you on the best course of action.

What are the Risks of Signing a Severance Agreement?

If you are asked by your employer to sign a severance agreement or separation agreement prior to or after being terminated from your job, there are three key risks to signing the agreement without fully understanding its legal terms and conditions.

1. Losing out on money or other benefits to which you are entitled. Depending on the reasons for your termination, your attorney may be able to negotiate a more substantial compensation package, including a higher severance payment and even payment of your COBRA health insurance premiums for several months after your termination. You may also be entitled to accelerated vesting of your restricted stock or stock options, or to future bonuses, which may, depending on the specific circumstances, be recognized as earned compensation which must be paid to you regardless of whether or not you sign the severance agreement.
2. Restricting yourself from working in the same or similar field within a certain geographic area or even worldwide. By signing the severance agreement, you may be agreeing to non-compete or non-solicitation restrictions, meaning that you agree not to work for a competitive employer or with certain clients for a specified period of time. This can be devastating if you plan to start your own similar business or want to work for another company in the same industry. Employers often make these restrictions overly-broad, which can impact their enforceability and provide a basis for your attorney to negotiate their applicability and breadth.
3. Waiving your right to a lawsuit. By signing a severance agreement and release, you are essentially prohibited from filing a claim or lawsuit against your employer at a later date — even if you are justified in doing so. Generally, severance agreements provide a release of seemingly all possible claims under the sun, even if egregious, including, among others, claims of discrimination or retaliation based on sexual harassment or age, race, ethnicity, national origin, disability, and gender, including sexual orientation, pregnancy, or transgender discrimination. Before signing, it is important to speak to an employment attorney – especially if you believe you were the victim of unlawful discrimination, harassment, or retaliation at your job.

What should I do if I have been wrongfully dismissed from my job?

In New York, employees, domestic workers, and certain contractors are protected from unlawful or wrongful termination, which occurs, among other reasons, when an individual is terminated due to discrimination or retaliation, and in some cases, as a result of whistleblowing to protect the health and safety of the public. If you believe that your termination was discriminatory or retaliatory in nature, consult with an employment lawyer to determine whether you have a claim. In the meantime, secure any applicable evidence, including relevant pictures, videos, and relevant communications to or from your employer such as emails, texts, social media posts, and voicemails, and ask any possible witnesses if they would be willing to support your claim, in order to have evidence to support your claims.