Severance Agreements: What Workers Should Know

Workers who are being terminated or laid off from their jobs may be presented with a host of papers to sign at the end of their employment. These papers sometimes include severance agreements that offer them lump-sum payments - but may significantly limit their legal rights.

What should workers know about severance agreements?

1. Severance payments generally are not required under Colorado or federal law, unless workers have an agreement in advance or unless the company has a severance policy in place that applies to them.

2. Usually a severance agreement includes a release of all claims a worker might have against the company, whether known or unknown, meaning the worker basically is agreeing not to sue the company for anything, ever. There are always exceptions in the law, but for the most part, a general release of claims will bar workers from bringing most kinds of lawsuits.

3. Sometimes severance agreements contain non-compete clauses, which could limit workers' abilities to work in their field for a particular amount of time, even for a matter of years. Colorado law is somewhat strict on non-competes and generally disfavors them. Sometimes they’re enforceable, and sometimes they’re not. Workers should not sign non-compete agreements with the idea that they can later challenge them. Usually they can’t. It’s better to get clarification as to whether non-compete provisions are enforceable before the agreement is signed.

4. Workers are taxed on severance payments, so the amount in the agreement is usually much higher than the amount actually paid out to the worker.

5. Severance payments generally delay unemployment insurance benefits, and they almost always reduce the amount workers in Colorado are eligible to receive. If you agree in the severance agreement to "voluntarily resign," this may prevent you from getting unemployment benefits.

It’s usually a good idea to have legal counsel review severance agreements before signing them, because they may have provisions that severely restrict the rights of the worker and could have an impact lasting long after the severance is gone.

See the video clip of Kim's 9News appearance on severance agreements.

Subscribe to Kimberlie Ryan's Working Wellness