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Three severance pay issues that could lead to conflicts

On Behalf of | Apr 19, 2024 | Employment Contracts |

Many companies offer terminated employees severance, particularly where the company has effectuated a layoff, a reduction in force or job eliminations. Employees in well-compensated roles or with employment agreements are also offered severance packages. However, it has become increasingly common for companies to ask employees terminated for other reasons to sign a separation agreement in which the employee is paid a certain amount of severance in exchange for signing a full general release of any claims and other terms in favor of the company.

Severance agreements ensure that a worker has a nest egg to build on if they lose their job unexpectedly. If the company decides to terminate the worker, the severance package included in their employment contract can help them cover their basic living expenses until they secure a new position elsewhere.

For employees offered severance, the following concerns may arise:

Unclear Terms in the Agreement

Sometimes, severance arrangements are very generic and do not provide specific details about the amount of compensation a worker may receive or what type of severance the company offers. Workers may have unfounded expectations, especially if they work for the State of Florida and come from a state that does not have the same statutory limitations on severance that Florida imposes on state employees. Broad or unclear terms in a severance agreement might lead to conflict between the parties when the worker requests severance after the loss of a job.

Attempts to Deny Severance Pay

Employers frequently include provisions in severance agreements that allow them to refuse to pay the severance package in certain scenarios. Terminating a worker for cause, particularly misconduct or poor performance, might lead to the company asserting that severance pay is not available. When workers expect to receive severance but the company attempts to deny it based on the terms of a contract, that may lead to disputes and possibly litigation.

Issues With Benefits

Certain types of support, like health insurance, can be prohibitively expensive for employees to provide on their own behalf. After a job loss, a worker may need to transition to Consolidated Omnibus Budget Reconciliation Act (COBRA) coverage, which might not align with their proposed budget while living on the severance package and savings.

Releasing Potential Claims

As indicated above, severance agreements contain language that requires the employee to release the company from any and all claims they may have. Therefore, if an employee believes they were wrongfully terminated and may have a claim, for example for discrimination or retaliation, they should consult with an employment attorney who can determine if there is a claim. Where a claim may exist, this might present an opportunity to negotiate a better severance in exchange for the release the company wants.