If I Accept a Severance Package, Can I Still File For Wrongful Termination?

If your severance agreement included a release, you may have given up the right to sue your former employer.

Some employers offer severance to employees who lose their jobs. Often, however, employees who want a severance package have to sign a release or waiver, by which they give up their right to sue the company.

Severance refers generally to compensation, benefits, or other assistance (for example, outplacement services) provided to employees who lose their jobs. Severance most often is simply a sum of money, but it can include other things as well. For example, an employer might offer to pay for continued health benefits for a few months, or might agree to allow the employee to keep company equipment, such as a laptop.

In a few states, employers that conduct large-scale layoffs are legally required to provide some severance to employees who lose their jobs. Otherwise, however, severance is not legally required. An employer may obligate itself to pay severance in an employment contract or employee handbook, or by following a consistent practice of paying severance. Absent this type of obligation, however, an employer doesn’t have to pay severance. (For more information on when severance is required, see Severance Pay Laws.)

Some employers choose to pay severance because they want something in return: the employee’s agreement not to sue the company. Such an agreement is usually called a waiver or release. In exchange for getting a severance package, the employee waives the right to sue the company for the legal claims specified in the release. (Many releases require the employee to waive the right to sue for any claims arising out of the employment relationship.)

If you got your severance package without signing a release, you are free to sue your employer. But what if you signed a release? In that situation, you’ll have to show that the release isn’t valid in order to sue. This is a very difficult endeavor; courts usually uphold these contracts.

Here are a few of the most common arguments employees make when trying to invalidate a release:

• I didn’t get anything in return. A release is a contract, in which each side gives something of value to the other. (In legal terms, the exchanged things or promises are called “consideration.”) Usually, an employee receives severance in exchange for promising not to sue. However, if you were already entitled to severance, the employer must give you something more for signing the release. For example, if your employee handbook says that employee’s receive one week of severance for each year of service, you are already entitled to that amount. Your employer can’t require you to sign a release to get it. Instead, the employer might offer you enhanced severance — additional money — for signing the release.
• I didn’t sign voluntarily. To be valid, a contract must be entered into voluntarily, without coercion. The fact that you really need the money promised in the severance agreement doesn’t make your agreement involuntary. However, if your employer puts pressure on you to sign right away, that might call the agreement into question. For example, if you are laid off, then called into a room and told that you have to sign the release right then and there or give up your right to severance, a court might find that your agreement was coerced.
• I didn’t know what I was agreeing to. Generally speaking, people who sign contracts are expected to have read them and understood their terms. However, if an agreement is so vague, poorly written, or incomplete that it really isn’t clear what everyone agreed to, a court might strike it down. This is especially so when the person or company that is trying to enforce the contract (the employer, in the case of a release) is also the one that wrote it and has the most bargaining power.
• I wasn’t told about my rights under the ADEA. When an employee is asked to give up the right to sue for age discrimination under the Age Discrimination in Employment Act (ADEA), the employer must follow special rules. For example, the employee must be provided certain information, must be told, in writing, to consult with an attorney, and must be given a certain amount of time to consider the release before signing — and to revoke it after signing. If an employer doesn’t follow these rules, the release can be invalidated. (For more information, see Waiving the Right to Sue for Age Discrimination.)

If your employer presents you with a release, it’s a good idea to consult with an employment lawyer before you sign your name on the dotted line. Rather than signing the release and having to argue later that it wasn’t valid, you can try to negotiate a better severance up front, one that recognizes and puts some value on the claims you are giving up.