In New York, a severance agreement is a legally binding contract between an employer and an employee that outlines the terms of their separation. While New York law doesn’t mandate severance pay, if offered, these agreements typically include several key components, which are outlined below.
1. $everance Pay:
- Amount: This is often the most significant part of the agreement (at least from the employee’s perspective), and can vary widely. It might be based on a formula (e.g., X weeks of pay per year of service), seniority, job title, or other factors. While some employers may use this as a guideline, there is generally no law specifying such a formula. Very generally, since the severance pay amount is in exchange for a release of claims, there is usually a direct correlation between (a) the amount of severance the employer is willing to offer, and (b) the strength of the claims that the employee is being asked to relinquish.
- Payment Structure: Can be a lump sum or paid in installments over a period. The structure can have implications for taxes and unemployment benefits.
- Consideration: The severance pay acts as “consideration” (something of value exchanged) for the employee’s agreement to release certain claims against the employer. This payment must be above and beyond what the employee is already legally owed (e.g., final paycheck, accrued vacation).
- Taxes: The agreement may specify how certain components of severance pay – such as wages, emotional distress damages, and attorney fees – will be treated for tax purposes. It is advisable to consult with a tax professional, such as your personal accountant, regarding this issue.
2. Release of Claims:
- This is a crucial element for the employer. In exchange for the severance, the employee typically agrees to waive their right to sue the employer for a broad range of potential claims, including those related to discrimination (age, race, gender, disability, etc.), wrongful termination, harassment, and wage and hour violations.
- This provision is often contained in a lengthy – and, frankly, intimidating-looking – paragraph, which will list out every conceivable law or statute that may give rise to a claim by the employee against the employer. These may include Title VII of the Civil Rights Act of 1964, the Age Discrimination in Employment Act of 1967 (ADEA), the Americans with Disabilities Act, the New York Labor Law, the New York State Human Rights Law, and the New York City Human Rights Law.
3. Continuation of Benefits:
- Health Insurance (COBRA): Employers with 20 or more employees are generally required to offer COBRA, allowing the employee to continue their health insurance coverage for a limited time (typically up to 18 months), though the employee usually pays the full premium. The agreement may specify if the employer will cover part of these premiums for a certain period.
- Other Benefits: Provisions regarding retirement benefits (pensions, 401(k) contributions, stock options), life insurance, and other perks should be addressed, clarifying their continuation or termination.
4. Confidentiality Clauses:
- Terms of Agreement: Often, the agreement will require the employee to keep the terms of the severance agreement itself confidential.
- Proprietary Information: Employees are typically restricted from disclosing the employer’s confidential, proprietary, or trade secret information.
- Restriction: New York law, specifically N.Y. General Obligations Law § 5-336, restricts these clauses. In sum, it provides that with respect to certain claims, “any term or condition that would prevent the disclosure of the underlying facts and circumstances to the claim or action unless the condition of confidentiality is the complainant’s preference.”
5. Non-Disparagement Clause:
- This clause seeks to prevent the employee from making negative or derogatory statements about the employer, its products, services, or personnel.
- New York law, specifically N.Y. General Obligations Law § 5-336, likewise restricts these non-disparagement clauses. In sum, among other things, it provides that “[n]otwithstanding any other law to the contrary, no release of any claim, the factual foundation for which involves unlawful discrimination, including discriminatory harassment, or retaliation, shall be enforceable, if as part of the agreement resolving such claim: (a) the complainant is required to pay liquidated damages for violation of a nondisclosure clause or nondisparagement clause; (b) the complainant is required to forfeit all or part of the consideration for the agreement, for violation of a nondisclosure clause or nondisparagement clause; or (c) it contains or requires any affirmative statement, assertion, or disclaimer by the complainant that the complainant was not in fact subject to unlawful discrimination, including discriminatory harassment, or retaliation.”
6. Non-Compete Clauses (Restrictive Covenants):
- These clauses, while subject to scrutiny in New York, aim to prevent the former employee from working for a direct competitor, starting a similar business, or soliciting clients or employees for a defined period and geographic area. Their enforceability depends on their reasonableness in scope and duration.
7. Non-Solicitation Clauses:
- These typically restrict the employee from soliciting the employer’s clients, customers, or employees after their departure.
8. Review and Revocation Periods:
- Older Workers Benefit Protection Act (OWBPA): This is an amendment to the ADEA that provides additional protections for workers who are 40 years of age or older. These protections include a non-waivable 7-day period to revoke the signed agreement after signing.
- New York State Legislation (Proposed “No Severance Ultimatums Act”): This proposed law, Senate Bill S372A, would extend similar review and revocation periods (21 calendar days for review, 7 calendar days for revocation) to all employees, regardless of age, and would also require employers to notify employees of their right to consult an attorney. This bill is expected to be signed into law.
9. Return of Company Property:
- The agreement usually specifies that the employee must return all company-owned equipment, documents, and property.
10. Cooperation Clause:
- Sometimes, the agreement may include a clause requiring the employee to cooperate with the employer on ongoing matters, such as investigations or litigation, potentially with compensation for their time.
11. References:
- The agreement may outline how the company will respond to future reference checks or recommendation requests.
Important Considerations for Employees in New York:
- No Legal Requirement: Remember that, generally, employers in New York are not legally required to offer severance. It’s often offered in exchange for the release of claims.
- Negotiability: Many components of a severance agreement are negotiable, including the amount and payment term of the severance, the duration of benefits, and the scope of restrictive covenants.
- Consult Legal Counsel: It is highly recommended that employees consult with an experienced employment attorney in New York before signing any severance agreement. An attorney can explain the terms, identify unfair provisions, help negotiate better terms, and ensure compliance with all applicable laws.
This information provides a general overview, and specific situations may have unique considerations.