Three Categories for Analyzing a Breach of a Severance Agreement
The breach of a severance agreement causes past employees and employers to scramble for their severance contracts. When employers break a severance agreement, this often means that employees are short changed their promised payments. But when an employee breaks a severance agreement, this usually has to do with the non-compete section. In both situations, legal solutions can be available.
Have you suffered a breach of a severance agreement? If so, an employment lawyer can help you determine the best steps for pursuing your legal rights.
The Basics of the Severance Agreement
A severance agreement is a contract between employer and employee at the end of the employment relationship. Often, the employee signs a non-compete section in return for receiving a lump sum payment, extended salary for a certain length of time, or extra health insurance benefits. Each scenario has different pros and cons, and it can be helpful to consult an employment lawyer about a severance agreement before signing.
Lump Sum Payment is beneficial because an employee receives it all at once and does not have to worry about the employer stopping payments or going bankrupt. However, one large lump sum payment can bump you into a higher tax bracket.
Extended Salary can abruptly end if the employer decides to stop paying or goes bankrupt. The employer might stop paying on the excuse that the employee has breached the agreement. Therefore, this can cause further problems for both parties.
To help protect the employee’s receipt of funds, it’s crucial to include a clause that says the employer’s failure to pay specified monies will be considered material breach with certain consequences. Furthermore, a severance agreement may not be enforceable if the employer does not provide something extra to the employee other than what is already obligated. A breached severance agreement should be analyzed by an experienced lawyer.
Three Categories for Analyzing a Breach of a Severance Agreement
When employers create a severance agreement, they use these three categories: choice of law, choice of forum, and legal dispute method clauses. Each of these categories builds another level of legal protection for the terminated employment relationship and the exchange of benefits. An employment lawyer can help you determine how to best sue for a breach of a severance agreement.
Choice of Law
Your employer will try to solidify where any lawsuit would have to be handled if either of you decide to sue. This can be helpful to the employer because the severance agreement may have been created under certain laws set in this jurisdiction. Laws differ between states and even local governments.
When a state is specified as the governing law for the agreement, you may only be permitted to a file a lawsuit in that state.
Choice of Forum
When drafting the severance agreement, your employer will likely want to choose the forum of where disagreements will be litigated. Naturally, the choice of law also influences the choice of forum since a forum cannot be chosen outside the law selected. An employer may want to specify the court for disputes based on proximity as well as familiarity with the court. This section of the contract will also decide whether disputes will be held in federal or state court.
You can recognize whether the court selected is federal or state depending on where the court is listed. If “United States” is included in the court name, then it is a federal court.
Legal Dispute Method
Based on this section of the severance agreement, the employer outlines how all disagreements related to the severance contract ought to be handled. Once you sign the agreement, you allow litigation to only occur within the parameters set out in the severance contract. The most common types of legal dispute methods are to waive the right to jury trial or to agree to arbitration for disputes.
Waive Right to Jury Trial
To limit liability, employers want employees to waive the right to jury trial so the employer has a higher chance of winning for breach of contract lawsuit. Juries are known to become sympathetic to employees during a lawsuit between employer and employee. An employer prefers the case to be brought before just a judge.
Arbitration for Disputes
For any disagreement that a past employee and employer may have for their severance agreement, the dispute will need to be taken through arbitration rather than a lawsuit. Arbitration is separate from the court system and the actual arbitrator is generally a private citizen who listens to the dispute and decides the case. Although arbitration is speeder and less formal than the court system, arbitrators are a private business and are likely to decide in favor of the familiar client, which is often the employer.
4 Points to Watch in Severance Agreements
Employees often know very little of what to expect in a severance agreement, sometimes only seeing what they have to gain monetarily and missing what they might be signing away. This is why it can be vital to your career to speak with an employment lawyer before signing. Being forced to sign can be a whole other problem as well. But to help you better recognize when you should carry your severance agreement to a lawyer, here are four points to keep an eye for in your contract.
1. The Non-Compete Phrase
Employers try to limit what previous employees can do with competing companies by including non-compete language. Sometimes what your employer wants you to sign away is far too extreme for a reasonable non-compete. Other times, the employer expects you to sign away your rights without providing some other benefit to you.
2. Attorney Payment after Breach
Check to see who pays attorney fees if the severance agreement is breached. Some employers try to insert language that places the responsibility of attorney fees upon the employee if the employee breaches the contract. That is unreasonable. What you want to see in the severance agreement is that the payment of attorney should fall to the prevailing party unless specified otherwise by the court.
3. Monetary Recovery
When your employer includes terminology within the severance agreement that demands you repay the severance payment upon a future breach, this is heavily in the favor of your employer. Confidentiality clauses or a non-compete phrase make an easy grounds for a past employer to accuse you of breaching the contract and demanding repayment. Therefore, you want to see a contract that obligates the employer to prove they suffered damages from the breach before they receive any recovered money.
4. UC Benefits
A severance agreement that doesn’t mention how the employer plans to respond to an employee’s application for unemployment compensation benefits has a gaping hole. It doesn’t matter if your employer has verbally told you that they won’t contest your UC application. Get it in writing.
Failure to Pay the Amount Specified in the Severance Agreement
Employees fear that after signing the severance agreement, the employer may stop paying their extended salary or not pay the lump sum. This is why it’s so important to have a lawyer look over the language of the contract. You want to have a legal consequence available to you if you must sue your previous employer for breaching the severance agreement. A lawyer is only so helpful as a well-written contract.
If you are being forced to sign a severance agreement or you suspect that something is illegal in your severance agreement, you should consult with a lawyer immediately to determine your options under the law.