COVID-19 Induced Job Losses and Severance Agreements

COVID-19 has had a crippling effect on the U.S. economy. As of May, more than 38 million Americans have filed for unemployment. In New York, that figure is approximately 1.6 million. Even as the country starts reopening for business, the uncertain economic outlook shows doubts about the workforce’s recovery.

Understand How You have been Laid Off

  • Layoff: A layoff can mean one of two things. It can be a temporary measure or it can be permanent. Whether it is a temporary layoff or permanent, you are eligible for unemployment. Health insurance continuation coverage (at your own cost) is available under the COBRA law.
  • Furlough: A furlough means that the employee is still employed with the company but that there is a temporary work stoppage. Think of a furlough as an unpaid leave of absence. If you are furloughed, the employer remains obligated to allow you to remain on the company’s health care coverage for up to 36 months under federal law. Again, this would be at the employee’s own cost.
  • Termination: To be fired or terminated means that your relationship with the company is eliminated. If it is for cause, you may be ineligible for unemployment insurance.

Understanding Severance Agreements

Severance payments are usually at the discretion of the employer – absent a union contract or other agreement that provides entitlement. Typically, employees who are temporarily laid off or furloughed are not eligible to receive severance. For employees who have been permanently laid off or terminated, severance is often offered in exchange for a promise by the employee to not sue the employer for any reason. Companies often want releases signed to avoid violating federal or state discrimination laws.

If you are fired or laid off, your employee handbook and any employment contract you may have signed may have severance terms. These terms may include how many weeks of pay you will receive, payment for unused sick or vacation time, as well as any non-compete or non-disclosure clauses.

We believe it is a good idea to have a lawyer review any severance agreement you are asked to sign for several reasons. First off, these agreements must contain certain provisions to comply with federal, state and sometimes local laws. Second, often when a lawyer is involved, the employer understands you know your rights and will act accordingly. Below are some key terms to understand before you sign a severance agreement:

  • Amount of Severance Pay: Severance pay is often based on a fixed amount for each year of employment. It could be a week or two for each year of service or measured by what’s customary in your geographic region or industry. For example, if you worked for a company for 5 years, you might receive 5 weeks of severance. Payment may be continued over time or made in a lump sum. You want to make sure you get paid in all events, despite death, disability or even a new job.
  • Other Types of Severance Benefits: Depending on your employer and industry, severance may also include unpaid bonuses, continuing employer paid health benefits or continued use of some corporate benefits like employee discounts.
  • Releases of Liability: Make sure you understand the rights you give up when you release your employer from liability. Make sure it makes sense based on the type of work you do, your profession and rights protected by your employment agreement or contract. By law, you cannot release the right to sue for violation of certain federal laws, without receiving something in return.
  • Non-Competition/Non-Disclosure/Non-solicitation Clauses: A non-compete clause is designed to prevent you from taking business from your employer. Make sure that these clauses are fair to you and not overly broad for your position and under your state law. Each state has its own laws about what reach these clauses can have.
  • Legal Fees: Sometimes employers will pay for the employee’s legal fees incurred for the review and negotiation of the severance agreement. It doesn’t hurt to ask.

In reviewing these agreements for clients terminated in connection with COVID, we’ve observed benefits have been less generous than standard in the industry. Some employers are using COVID to increase their bottom line by laying off employees, even though the business has not been affected. Make sure you know your rights if this affects you.

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