What you need to know about employment severance agreements in Utah
What is a severance agreement in Utah?
A severance agreement typically contains some kind of payment to the employee in addition to wages earned. The basis for a severance agreement can be to compensate the employee for time served with the company and help give the employee some kind of financial assistance as that employee looks for new employment. It can also be based on policy of the company. It can also be used to protect the company from liability for events arising from that employment relationship.
The amount of severance can depend on several factors including the employees position with the company, the amount of time they served, the employee’s salary, or the company's willingness or ability to pay and generosity among other things.
Am I obligated to enter into a severance agreement at the end of my employment?
If the company does not offer any compensation but still wants the employee to sign something before leaving the company, the employee may not have an obligation to sign anything. If this is the case and even if the employee does sign something, there may be no contract since there was no exchange in promises.
The company has no obligation under the contract to do anything in exchange for what the employee may promise. Without that obligation, it cannot legally be a binding contract.
If an employee does not want to sign a severance agreement, they should not have to but they may not get the severance agreement offered by the company. However, the severance agreement cannot include benefits the employee is already legally entitled to such as wages as explained further below.
It would always be wise to have a labor attorney review the severance agreement and determine the best course of action on whether or not to sign the agreement or not. An employment attorney can also help negotiate a more favorable severance package. It never hurts to try and negotiate an higher amount even though you may think you have no basis to do so and a skilled employment attorney can help employees possibly obtain a higher severance compensation amount.
Does a company have to offer severance at the end of employment?
Typically, companies are not required to offer severance packages. However, a company may have an internal policy on severance packages that they may have to abide by and require them to pay severance. It could also be based off a union agreement or language related to a mass layoff.
If the company doesn’t abide by its own internal policy on severance packages, it could be a potential breach that an employee can recover. If there is no such policy, there is nothing an employee can really do to get the company to agree to offer a severance package unless there is an incentive for the company to do so.
Waiver of legal claims in a severance agreement.
Severance packages also include additional contract terms. It is very typical to have a severance package contain language where an individual waives or in other words, discharges or agrees not to sue on legal claims that employee may have against the company during his or her employment with the company.
As an employee, if you have a legal claim against the company, that legal claim has potential value depending on the strength of the case and how much the employee could recover from the case. It would be wise to consult a Utah Employment Attorney before entering into such a severance agreement and releasing those legal claims. The employee should also have terms favorable to them as it relates to legal claims during employment.
Depending on the strength and value of those legal claims, a Utah Employment Attorney can help you negotiate a higher severance amount or determine whether or not it is worth it to sign such terms.
Requirement to return all company equipment before payment of severance
A severance agreement can also include additional terms where an individual must return all company property before payment of the severance agreement. If an employee does not comply with those terms, that can be used as an excuse by the company later not to comply with the severance agreement. It would be wise to draft claims where it is clear here so there are no excuses to withhold a severance package down the road.
What types of payment cannot be part of a severance agreement?
A company cannot, as part as a severance agreement, withhold earned wages such as a final paycheck, earned vacation and sick leave, earned bonuses and commissions and payout of company-owned stock as part of a severance agreement or the basis of paying a severance agreement. These are earned wages or vested benefits that a company is already legally required to pay under Utah wage claim laws or under the applicable stock compensation agreement of the company.
A company cannot require an additional terms to payment of theses benefits in order for an employee to get his or her final paycheck and earned wages. Just like the lack of mutual exchange of promises if a company forces someone to sign something at the end without payment for agreeing to those terms, the terms of the contract may not be enforceable if the company is just paying the employee something they were already legally obligated to do. The contract could also a violate public policy if it is forcing an employee to sign something that waives his or her legal claims against the company in exchange for a final paycheck.
The circumstances could also be a type of extortion which is a crime in Utah, for withholding a final paycheck unless the employee waives his or her legal claims against the company. These wages are part of the employment agreement, either written or implied that the company is already obligated to abide with and must pay whether or not an employee decides to enter into a severance agreement.
If a company refuses to pay your earned benefits if you don't sign a severance agreement, it would be best to reach out to a labor employee to explore your options in resolving the issue without entering into an agreement that may or may not be in your best interest.
Non-disparagement clauses in severance agreements
A severance agreement can also include language where both sides are not allowed to disparage one another after the termination of employment. It can also include language where both parties are obligated to mention a specific basis as to why the parties separated. This can be beneficial to both sides if the situation ended up being not on the best of terms and limit what the company or the employee can say about the company to other employers or businesses. The language should apply to both parties.
However, the language can be broad and it would be wise to consult an employment attorney to ensure the language is fair and isn't used as a catalyst against an employee down the road and limit an employee's ability to say certain things about his or her experience with the company.
Unemployment pay, severance and health benefits
A severance agreement can also affect one’s unemployment pay since severance pay is considered wages and can extend the date to when a person would be eligible for unemployment benefits. The language in the severance agreement also may effect one’s ability to collect unemployment as well if it states the termination was for cause or if the person resigned or quit voluntarily.
What can be important to employees as part of the severance agreement is also the continuation of the company paying for health benefits for an extended amount of time after the termination of employment. If there is nothing on that in the agreement, an employee will have the pay for the entire premium on his or her own through COBRA which is where a big amount of the severance package could go.
Non-compete and non-solicitation clauses
Severance agreements in Utah can also contain non-compete agreements and non-solicitation agreements and confidentiality clauses. Under Utah law, even if an employee never entered into a non-compete agreement during his or her employment, that non-compete could still be enforceable on the employee for one year after the termination of employment.
It would be wise to talk to an employment attorney to see if a non-compete agreement is even enforceable against you based on the language of the agreement and the position you held.
The severance agreement could also include a confidentiality clause where if the employee or the company talks about the terms of the agreement, it could be a breach of the terms of the severance agreement. Typically the language says a person can talk about the terms to their spouse, tax accountant and or legal counsel without a violation of the terms. This language should be binding on both parties.
What happens if I breach the terms of the severance agreement?
If an employee fails to abide by the terms of the severance agreement, it can result in revocation of the severance agreement and an employee may have to pay back the compensation amount if he or she is in breach of that agreement. This can include violation of the non-compete agreement, failure to return company property, or violation of the confidentiality or non-disparagement clause.
There also may be specific language in the agreement as what damages could be for a breach. There could also be language on how the parties will resolve a breach and where, such as a choice of forum clause, which could require an employee to resolve a breach in a state far away from where they reside. It could also require the employee to go through arbitration if there is an arbitration clause in the agreement.
If the company breaches the agreement, the employee most likely may not be bound the agreement anymore. The severance agreement can also be part of a wage claim against the company where an employee could recover attorney fees and interest for the failure to pay the severance amount. It would be best to reach out to an Employment Attorney to advise what to do in case the company breaches the terms of the agreement. This could include them violating the non-disparagement portion of the contract, the confidentiality clause or the failure to pay the severance amount.
Our Utah Employment Attorney can better assist you with either the drafting of a legally valid severance agreement, or the negotiation of the terms and compensation of a severance agreement. Reach out to our Utah Employment Law Firm for further inquiry on your specific legal needs today.