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When Should You Reject a Severance Package?


When Not to Sign a Severance Agreement

You’re called into a conference room to discuss your impending layoff. As you listen to an HR official or legal counsel read off the terms of your termination, the question inevitably pops into your mind: Should I accept this severance offer, or pursue a lawsuit to recover damages instead? It can be difficult to know what to do after the shock of termination, especially if your employer has demonstrated a history of discrimination, bad treatment, or other employment offenses. Here, our Houston employment law attorneys discuss a few of the instances where you should consider saying “no” to your severance offer.

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Why Do Companies Offer Severance Packages?

There are a few different reasons an employer may decide to offer you a severance agreement. The Texas Labor Code dictates that the term “wages” encompasses “severance pay owed to an employee under a written agreement with the employer” (Sec. 61. 001. 7.) When read in combination with the Fair Labor Standards Act, this means that unless severance pay was included in your original employment agreement, your employer has no legal obligation to offer it. Because of this, employers will often claim they are choosing to offer severance because they want to treat you fairly after your service. Although this may be true in many cases, it’s also possible that another reason is driving their offer.

One of the primary reasons for offering a severance package is to offset a release of claims, where the company exchanges the severance money for a guarantee you will not pursue private arbitration. This is not legally enforceable in every case– for instance, if you are over the age of 40, the Age Discrimination in Employment Act states you must be allowed at least 21 days to consider the offer. However, while it’s not impossible to pursue a lawsuit after you’ve already signed a severance agreement, it becomes much more difficult to prove your case if you do.

Reasons to Reject a Severance Package

  • A non-compete clause: It’s common for employers to request that you wait a period of time before returning to the same industry, especially if it’s a competitive one. Read over the language very carefully here, as these clauses can be restrictive enough to prevent you from ever landing another job in your field.
  • A non-disparagement or “gag” clause: Employers are eager to avoid negative press, so if there’s a chance you may criticize them publicly, the company may include this clause as a precaution. While not technically illegal in and of itself, the Consumer Review Fairness Act is also the law of the land, and there is some precedent on the side of employees who write negative reviews online.
  • An agreement that your employer is not guilty of wrongdoing: This stipulation is perhaps the hardest to fight in arbitration if you’ve already signed off on it. The language is standard for many companies, but in cases where you believe wrongdoing has actually occurred, you should consult with an employment law attorney first.
  • A “no-rehire” clause: If you sign an agreement with this clause, it means you confirm that you will never work for the company again. This item also has a shaky legal foundation. The Equal Employment Opportunity Commission opposes these clauses and has claimed they constitute retaliation.

What Happens When You Refuse a Severance Package?

Like any legally binding contract, you can walk away from a severance offer at no detriment to yourself. Although negotiation isn’t always an option, some companies may work on making the severance package more enticing to you. However, if you refuse to sign the contract and want to file suit, your next step should be consulting with an employment contract attorney who understands the laws in your state. Because employment law is complex and the parties almost always settle outside of court, it’s in your best interest to seek experienced counsel before pursuing legal action.

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