When employees receive a severance agreement, they naturally focus on the number at the top of the page: How much money is the company offering me?
But there is another question that may be even more important: What am I giving up to get that money?
In most severance agreements, the employer is not simply giving an employee additional compensation as a parting gift. The company wants something in return. Usually, the most important thing it wants is a release of claims. By signing a release, you may be permanently giving up your ability to pursue legal claims against your former employer—even claims you do not yet realize you have.
Before signing a severance agreement in Illinois, employees should understand exactly what they are releasing and whether the compensation being offered is worth the rights they are surrendering.
What Is a Release of Claims?
A release of claims is a contractual provision in which an employee agrees not to pursue certain legal claims against an employer in exchange for severance or other consideration.
These provisions are often extremely broad.
A typical release may state that you are releasing all claims, whether known or unknown, arising out of your employment or termination through the date you sign the agreement.
The agreement may then contain a long list of federal, state, and local employment laws. Employees sometimes skim this section because it looks like legal boilerplate. That can be a mistake.
The release may be one of the most valuable provisions in the agreement—from the employer’s perspective. The company is attempting to obtain certainty that after paying your severance, you will not turn around and pursue claims arising from what happened during your employment.
What Employment Claims Could You Be Giving Up?
Depending on the language of the agreement and applicable law, a release may cover potential claims involving:
- Discrimination based on race, sex, age, disability, religion, national origin, pregnancy, or another protected characteristic;
- Sexual harassment or a hostile work environment;
- Retaliation for complaining about discrimination or harassment;
- Disability accommodations;
- Family or medical leave;
- Whistleblower retaliation;
- Wrongful or retaliatory discharge;
- Breach of an employment agreement;
- Unpaid wages, commissions, bonuses, or other compensation; and
- Other claims arising from your employment or termination.
The important point is that you may be releasing a claim even if you have never filed a lawsuit, made a formal complaint, or even realized that you potentially had a legal claim.
That is one reason the circumstances surrounding your termination should be reviewed along with the severance agreement itself.
The Claim You Don’t Know About Can Still Matter
Imagine an employee who is terminated shortly after returning from medical leave. The employee is offered three months of severance and signs the agreement without having the circumstances reviewed.
Weeks later, the employee learns that the timing and circumstances of the termination might have supported a disability, medical-leave, or retaliation claim.
At that point, it may be too late.
A broadly drafted release frequently covers claims that existed before the employee signed, including claims the employee did not know about at the time.
The same issue can arise when an employee recently complained about harassment, reported suspected misconduct, requested an accommodation, questioned unpaid commissions, complained about overtime, or raised another workplace concern shortly before being terminated.
That does not mean every termination following one of these events is unlawful. It does mean that the facts should be evaluated before the employee signs away potential claims.
Don’t Confuse Severance With Money You Are Already Owed
Another important question is whether the employer is actually giving you something new in exchange for the release.
Suppose the agreement says you will receive your final paycheck, an earned commission, and reimbursement of legitimate business expenses. Those may be amounts the employer already owes you.
That is different from additional severance compensation offered specifically in exchange for signing a release.
When reviewing a severance package, separate the two categories:
What am I already entitled to receive, and what additional compensation am I receiving for signing this agreement?
That distinction can dramatically change how attractive a severance offer actually is.
A Release May Protect More Than Just Your Employer
Employees should also look at who is being released.
A severance agreement may not simply release the company identified on your paycheck. The language may extend to parent companies, subsidiaries, affiliates, benefit plans, officers, directors, owners, employees, agents, insurers, successors, and other related parties.
That can matter when more than one company or individual was involved in the circumstances giving rise to a potential claim.
Before signing, you should understand both which claims are being released and who is receiving the benefit of that release.
You Cannot Necessarily Waive Everything
Even a broadly drafted release has legal limits.
For example, a severance agreement cannot prevent an employee from filing a charge with the Equal Employment Opportunity Commission or participating in an EEOC investigation or proceeding. However, an employee may still waive the right to recover personally on certain claims covered by a valid release. The distinction between the right to communicate with a government agency and the right to obtain individual monetary relief can be important. Parzivand Law Firm
Similarly, a valid waiver of federal age-discrimination claims has additional requirements for employees age 40 and older. Among other protections, an individual employee generally must receive at least 21 days to consider an ADEA waiver and seven days after signing to revoke it. Different requirements apply to certain group termination programs. Parzivand Law Firm
A severance agreement also cannot validly waive ADEA claims arising after the agreement is signed. Parzivand Law Firm
These are additional reasons not to assume that every sentence in a severance agreement is necessarily enforceable exactly as written.
Is the Release Mutual?
Most severance agreements are written in one direction: the employee releases the employer.
That raises another question worth considering: Does the employer have any potential claims against you?
For many employees, this may not be an issue. But for executives, employees involved in compensation disputes, or anyone whose separation has become contentious, a mutual release may be worth discussing.
If the company wants certainty that you will not sue it, there may be circumstances in which you should seek similar certainty from the company.
How Much Is Your Release Worth?
There is no universal formula. Two employees earning the same salary can receive identical severance offers even though the value of the claims they are releasing is dramatically different.
An employee terminated in a routine reduction in force with no apparent legal claims may evaluate three months of severance differently from an employee terminated days after making a documented discrimination or whistleblower complaint.
This is why evaluating a severance agreement should involve more than calculating the number of weeks of salary offered.
A Release of Claims May Be Negotiable
Employees sometimes assume the release is standard and therefore cannot be changed.
But severance agreements can often be negotiated.
Depending on the circumstances, negotiations may involve additional severance, COBRA assistance, commissions or bonuses, reference language, mutual non-disparagement provisions, restrictive covenants, or changes to the release itself.
Potential legal claims can also affect negotiating leverage. An employer asking an employee to release a significant potential claim may evaluate severance differently once the issue is identified and presented.
Of course, negotiation does not guarantee that an employer will increase its offer. But once you sign the agreement and the applicable revocation period expires, your opportunity to negotiate is generally over.
Before You Sign, Understand the Trade
A severance agreement is ultimately an exchange.
Your employer is offering you money or benefits. In return, you may be giving the company something extremely valuable: finality.
Before making that exchange, understand what happened during your employment, what potential claims may exist, what rights the agreement releases, and whether the severance offered adequately compensates you for giving those rights up.
Have Your Illinois Severance Agreement Reviewed Before You Sign
If you have received a severance agreement, 1818 Legal can review it before you sign.
We represent employees and executives throughout Chicago and Illinois in severance negotiations and employment disputes. We can review the circumstances surrounding your termination, identify potential claims, explain exactly what rights the release requires you to give up, and determine whether there are grounds to seek improved severance terms.
Before you sign away potential employment claims, contact 1818 Legal to discuss your severance agreement.
