COVID-19 Layoff Separation Agreements – Three Things to Consider

(Last Updated On: May 14, 2020)

If you are one of the nearly 17 million people who filed for unemployment insurance benefits since the COVID-19 pandemic hit the United States, you know firsthand the impact of the mass layoffs. Some of those laid off received severance offers from their employers as part of their separation from employment.  While there are always important things to know before signing a severance offer, and considerations to make when negotiating a separation, the mass layoffs associated with COVID-19 alter the playing field.

There are three key pieces to every separation agreement that are the most important for determining your next move: the Dollars, the Release of Your Claims (i.e., the giving up of your legal claims), and Your Continuing Obligations after your separation.  Every recently terminated employee must weigh these issues to determine whether to sign the agreement as is, but COVID-19 renders them more complicated.  Here are our suggestions on what to look for in your COVID-19 severance agreement:

1. The Dollars. Given the uncertainty in the current economic landscape, perhaps now more than ever, the dollars are likely to be the most important thing you consider as you decide whether to sign your agreement.  “Dollars” as used here is shorthand for “consideration” – a legal concept that refers to what you will get if you sign.  Usually there is a monetary component (the actual dollars), and non-monetary components (e.g., continued health insurance coverage, an agreement about reference calls, the ability to file for unemployment insurance benefits, etc.).

Keep in mind that with COVID-19 layoffs, employers may not have an appetite for monetary negotiation.  Employers may have set aside a certain amount of money to address en masse layoffs, and any attempt at negotiation could be a non-starter. Some employers, however, have written policies governing the amount of severance to which employees are entitled. Make sure you are aware of any such policy and read it carefully—you don’t want to leave money on the table.

Every well-drafted severance agreement is going to call for you to stipulate that you have been paid everything that you are owed by the company— this includes unpaid wages and commissions, vacation pay, and PTO to which you may be entitled. Don’t sign until all these boxes are checked.

The non-monetary factors are important to consider as well. Will you need continued health insurance coverage? Can you file for unemployment? What will your former employer say when a prospective employer calls for a reference check?  If you can get some clarity on the non-monetary elements, be sure to have them incorporated into the agreement.

2. 2. The Release of Claims. If you have done any Google searches on severance or separation agreements, you know that your employer is not acting solely out of the goodness of its heart in offering you money upon separation. The primary reason that any employer offers severance pay is to buy your claims from you as part of a risk-mitigation effort. Especially if an employer is hard hit by the economic downturn brought on by COVID-19, the last thing it wants is the possibility of you claiming that you were unlawfully terminated and filing a costly lawsuit against it.  Employers avoid this risk by paying you a sum of money sufficient to purchase your release of claims—a guarantee that you will not accuse your former employer of any legal wrongdoing.  Read the release of claims section carefully to understand what and whom you are releasing, and weigh whether it is worth it.  A skilled employment lawyer can help you identify and gauge the value of any potential claims.

2. Your Continuing Obligations. For those of you who have read our other material on severance agreements, you know that these documents are drafted to benefit the employer, not to protect the employee.  Be vigilant when reading the agreement: is there a new non-competition clause in it? Does it incorporate a non-disclosure agreement you signed years ago? Are you obligated to be available to train or help the company going forward?  Your employment may be ending, but your commitments to your former employer may not be.

Be sure to keep these three key factors in mind as you review your proposed severance offer.  If you have questions, seek the advice of an experienced employment attorney.