Beware of Becoming Enslaved by a Severance Agreement!

Many hardworking employees who dedicate their lives and sacrifice their own health and family for the good of their corporate employers will sooner or later find a pink slip in their inbox, usually right before the holidays. Whether it’s due to “downsizing” or for whatever pretextual reason the employer can think of to justify their discriminatory reason for their termination of employment, getting fired hurts. Getting fired creates immediate fear, especially for those living paycheck to paycheck and have a family to support. Employers try to soften the blow by offering a severance package consisting of a severance check, usually calculated at one week of pay per year of service, and a severance agreement.

Severance agreements are where evil weasly corporate lawyers often take the opportunity to turn terminated employees into corporate slaves. Such slavery is typically indoctrinated by a clause requiring the former employee to “cooperate” with the employer if the employer gets investigated or sued concerning an area of knowledge or skill held by the former employee. This seemingly looks innocent at first glance, but additional language is usually added to broaden the scope of “cooperation” to include any other reason at the employer’s discretion. Such reasons can include coming back to the company to train staff, replacements, and even doing the former employee’s old job – all FOR FREE! The enslavement is cemented by other clauses requiring that any and all disputes arising out of the severance agreement be resolved by binding arbitration, and that the prevailing party in any such dispute will be entitled to recover their attorney fees and costs from the other party. Hence, if the former employee, who after signing the severance agreement and cashing that severance check, is called upon to return to work, but for FREE, and refuses to do so, then the employer could compel the employee to arbitration.

Employers love the arbitration process because it can be inherently unfair. Arbitration agreements deprive the right of a person to sue in court and requires them to bring their claims before a third party neutral, such as a retired judge, to decide on their claims and to make or deny awards thereafter. Due to the fact that arbitrators are paid by the parties, they tend to be business-minded when deciding on cases brought before them. In other words, how likely will the arbitrator confront the employer and its lawyers in a future arbitration, or on the golf course, versus the likelihood of seeing the same former employee in another case? Accordingly, the scales of justice in the arbitration world will often weigh in favor of the employers. Worse yet, arbitration is quite expensive. A reasonably skilled arbitrator will often charge at least $600 or more per hour, and the loser after arbitration will have to foot the entire bill as required by the severance agreement.

In addition to the paying the costs of arbitration, the loser will be required to pay the prevailing party’s attorney’s fees, which can be billed at $500 to $800 per hour. This amount alone could bankrupt most wealthy people. Therefore, if the corporate slave refuses to work for free after getting fired, they can be taken to arbitration and potentially bankrupt themselves.

In the end, it is never wise for anyone to sign an important document without having an attorney help them understand what they are signing. More importantly, if an employer is trying to force an employee to sign a severance agreement on the spot without having the opportunity to seek legal advice, this is huge a red flag warning to not sign it.

Please note that the information we are providing here in our website is not meant to create an attorney-client relationship nor is it to be relied on as legal advice. For a free legal consultation by phone with attorney Thomas M. Lee, please contact us.