SHOULD I SIGN THE SEPARATION AGREEMENT?

Being fired is traumatic and devastating. Employees subjected to the shock of termination often find themselves being offered a severance package by the employer. To some, this may have the appearance of softening the blow. But executing the agreement could make things worse. 

Michigan is an at-will state. This means employers are free to terminate employees for any reason, even a lousy reason, provided the cause is not unlawful. If your employer offers a severance package, this might be the first indication that you have a claim – despite what your employer tells you. But even if you potentially have a claim, there may be good reasons to sign the agreement anyways.  Here are a few things to consider for Michigan employees before signing your severance agreement. 

Why you should not sign the severance agreement – 

• Signing the severance agreement could do more harm than good.

Getting fired is traumatic. You are probably angry and disappointed when you are handed a severance agreement. That makes it hard to analyze your situation or the terms of the agreement clearly. Employees may think they understand what they are singing, but they do not. The implications can be devastating. The severance agreement is generally written to favor and protect the employer strongly. For example, non-compete agreements may be reaffirmed. For some, this might be acceptable. But for others, this can essentially ruin an employee’s ability to seek other employment and effectively lay the groundwork for a lawsuit against the employee. There are different traps, too. Employees should be careful to ensure they are not unknowingly putting a noose around their necks. 

• Your reputation matters.

Severance agreements generally protect an employer’s reputation. But they do little to protect an employee. Furthermore, do you know what’s contained in your personnel file? It could be devastating. Employees often execute severance agreements without acquiring all the information they are entitled to under Michigan law. The result is that the employee makes an important decision without the best available information, thereby harming their reputation. The effect can be devastating in the long term as career prospects and earning potential is diminished. 

• You have a valuable claim. 

Do you have claims as a whistleblower? Did your employer violate wage and hour laws? Are you being subjected to illegal retaliation? These are complex and nuanced questions, and you probably don’t know the answer. Sitting down with an attorney can help you evaluate your situation to determine whether it makes sense to enter into a severance agreement, negotiate better terms, or file a lawsuit or administrative complaint. Your case may be valuable. Signing the severance agreement could be costly. 

Why you might want to sign that severance agreement – 

• Litigation is stressful, expensive, and uncertain. 

You may have a case against your employer. It may be a good case. It may be the kind of case an employment attorney dreams of. But guess what? Litigation is time-consuming and uncertain. Even if you do retain an attorney on a contingency basis (where the attorney only gets paid if you get paid), there is still an opportunity cost to you because time devoted to litigation will be time that you cannot spend doing other things like seeking other employment, working, or spending time with your children.

Furthermore, the mental and emotional toll can be exhausting. Employers often have big budgets for legal fees. You probably do not. Even if an attorney takes your case on a contingency basis, there is still a personal cost because your employer will try to “bury” you in paperwork and engage in personal attacks.

• You already have another job. 

Damages in an employment law case generally depend on how much you have lost in wages. This includes back pay (what you should have been paid) and front pay (what you would have been paid). Furthermore, employees who are terminated, even if they are wrongly terminated, must mitigate damages by seeking reasonable, alternative employment. This means that the amounts you have earned after being wrongfully terminated will make your case less valuable. To many employees, this seems fundamentally unfair. But it is reality. 

Suppose you already have another job secured, and you can start it soon. In that case, you may find yourself in an extraordinary situation where there is no offset if you execute the severance agreement. You are getting paid by your former employer and new employer simultaneously. In other words, you get to “double-dip.” It’s challenging to beat that. Double-dipping is generally not allowed to calculate economic damages if you go to trial. 

Conclusion

If you are being offered a severance package, there is probably a good reason. It is worth investigating.

With legal counsel, you may be able to secure terms in the severance agreement that will erase your employment record, protect your reputation, protect former colleagues, and help you to move forward with finding new gainful employment.

Furthermore, an attorney may use severance negotiations to mitigate the risks of a non-compete.  A generous severance package is good because it helps both parties move forward and avoid litigation while smoothening the transition to new employment. But protecting your reputation and future earnings is likely even more critical.

We have assisted clients in negotiating modest severance agreements, and we have helped clients negotiate six-figure severance packages. Overwhelmingly, we have found that it is not the amount of the severance that is ultimately most important to our clients. Instead, the ability to protect the reputation and future career prospects matters most.  Please get in touch with our office if we can assist you or if you need help drafting, reviewing, or negotiating a severance package.