The Definitive Guide
New York Separation Agreements
Are you considering a New York separation agreement? You are not alone. Executives are often provided with separation agreements when their employment terminates. But most people are not sure how to handle them.
If you have been terminated and presented with a separation agreement, then the New York Separation Agreements: The Definitive Guide is your key to understanding the basics. This Guide will walk you through the following:
- What is a New York separation agreement?
- Why does your employer want you to sign a separation agreement?
- What are the common terms of a separation agreement?
- Can you, and should you, negotiate?
- What terms can you negotiate?
- What other factors should you consider before signing?
What is a New York Separation Agreement?
A New York separation agreement, also commonly referred to as a severance agreement or package, is a contract between an employer and employee that dictates the terms of an employee’s separation from the organization.
The separation agreement contains a number of provisions, such as the amount of severance pay, the official date of termination, and any obligations or restrictions on the employee, such as waiving rights to file a lawsuit or non-compete and non-solicitation provisions.
Employees are not legally entitled to severance pay or a separation agreement unless stated in a contract, such as a collective bargaining agreement or employment contract.
Top-level employees and executives are the most common recipients of separation agreements, but separation agreements are also common in situations where employees are terminated for reasons beyond their control. An employer is less likely to offer a separation agreement to an employee terminated for poor performance or misconduct.
Why Does Your Employer Want You to Sign a New York Separation Agreement?
On its face, the idea of severance pay may seem like a kind gesture, but it may not be as genuine as you think. Separation agreements not only give you money or benefits, but they also take things from you as well.
Employers use separation agreements to protect their own interests. For instance, separation agreements often protect confidential information or trade secrets.
Make sure you take your time to consider the agreement before signing it. Don’t feel pressured to sign the separation agreement at the office. Take it home and review it carefully and consider getting legal advice. Our firm offers a Review & Consultation which is a quick and affordable way to get a legal opinion about your separation agreement.
An employer may also offer a New York separation agreement as a means to get you to leave quietly, waive your right to sue, or prohibit you from speaking ill about them. Separation agreements may be offered out of fairness or because they are a customary practice within an organization.
Common New York Separation Agreement Terms
The following terms are commonly included in New York separation agreements:
- Severance Pay. Severance pay is the amount paid to a departing employee. The separation agreement should clearly state the payment amount, terms of payment (lump sum or installments), and method of payment.
The amount is often based on the employee’s years of service and position in the organization. Some companies use formulas to determine the amount. For example, a company may offer one week’s pay for each year of service.
Pay particular attention for any mitigation offset. Beware of language requiring you to pay back money or receive reduced payments if you get a new job within a specific time frame.
- Money Owed Independent of Severance Pay. The agreement should account for the payout of any benefits or money owed independent of the severance payment.
This may include payment for unused vacation days, personal or sick time, commissions, bonuses, deferred compensation, or unreimbursed business expenses.
- Pension, Profit Sharing, 401(k), Stock Options, Loan Repayments. If applicable, the separation agreement should address the handling of any other financial benefits. For instance, if you have stock options, make sure you can exercise them.
While a departing employee usually has 90 days to exercise vested stock options before they expire, the agreement should clearly state this and possibly allow for an extension of the 90-day period.
- Official Date of Termination. The agreement should clearly state your official date of termination and reason for termination.
- References. This clause should detail the type of reference the organization will provide to you. If they agree to write a letter, have the letter attached to the agreement. If a letter is not written, specify it in the terms of the separation agreement.
- Health and Other Insurance Benefits. The agreement should state whether the company will continue payments toward your health insurance and the terms of those payments. Vision, dental, and group life insurance should also be addressed.
- Return of Property. This term requires the employee to return all company property.
- Non-Compete Clause. Non-compete clauses restrict an employee’s ability to work in a particular industry within a specific geographical range.
- Non-Solicitation Clause. This clause prohibits employees from soliciting a company’s customers or clients.
- Confidentiality. A confidentiality clause restricts an employee’s ability to speak on a range of topics. For example, a confidentiality clause may prohibit an employee from speaking about the terms of the separation agreement.
- Unemployment Benefits Information. Prior to changes in New York law, it was common for an employee to ask an employer to include language that they would not contest unemployment benefits. A person terminated for cause or who quits is not entitled to benefits.
- A Release of Claims. This clause prohibits an employee from suing an employer on a variety of claims. Read this provision carefully to understand the rights you are giving away.
- Non-Disparagement Clause. This provision prevents a party from denigrating the other. If this term is included, it should be mutual, meaning both the employer and employee are prohibited from demeaning each other.
- Time to Consider and Revocation Period. If you are 40 or over, federal law requires you have 21 days to consider a severance agreement and a seven-day revocation period to revoke an already-signed agreement.
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Can You, and Should You, Negotiate?
Whether or not you can, or should, negotiate the terms of your New York separation agreement depends on whether you have any leverage. Consider the following when assessing your negotiating power:
- Your Performance and Value. What value did you bring to the company and did you have meaningful relationships inside and outside the organization? Did you have strong performance reviews and is there documentation to support your performance?
- Circumstances Behind Your Termination. If your termination was beyond your control and you have a positive work history, you are more likely to have increased bargaining power in negotiating a New York separation agreement.
- Potential Legal Claims. If you have potential legal claims, you will be in a much stronger position to negotiate.
- Financial Status of the Employer. Financial troubles may restrict an employer’s ability to negotiate the payment amount, so you may have to look for other areas to negotiate.
- Post-Termination Behavior. It is important to remain professional while negotiating your New York separation agreement, especially if the separation agreement is not required by a contract.
What Terms Can You Negotiate in Your New York Separation Agreement?
- Money. You can always ask for more money. If your company uses a formula to determine severance pay, use the formula amount as a starting point for negotiations.
Also, get creative and do not limit yourself to only negotiating severance payments. Consider bonuses, deferred compensation, and any other money owed. The agreement should include all payment deadlines.
- Stock Options. The New York separation agreement should cover your right to exercise stock options and, if necessary, ask for an extension of the 90-day period. If you have unvested stocks or options, ask your organization to accelerate the vesting date so they vest before you leave.
- Insurance Benefits. If health insurance is not provided for in the agreement, you can continue coverage through the Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA).
Under this federal law, companies with at least 20 employees must offer health insurance to terminated employees for 18 months at their corporate rate.
However, the price the employee must pay is the full cost the employer paid, which can be expensive. For example, if your employer paid $600 per month for your benefits, you would pay the same price of $600 per month for 18 months.
Due to the significant cost of health insurance, you may want to negotiate extended health benefits or ask your employer to make your COBRA payments.
Depending on the health status of your family, payments for benefits may be as important as the severance payment amount.
- Outplacement Services. If you do not need these services, ask for the cash value or have the money allotted to something else like health insurance.
- Future Job References. What your employer says about you after you leave is very important. Negotiate terms in the New York separation agreement that clearly dictate what your employer will say about you when contacted by any future employers. Have the employer draft a reference letter and attach to the separation agreement if possible.
- Keeping Equipment. Is there equipment you used on the job, which you would like to keep? If so, ask to keep or buy equipment at a reduced price (e.g., phones, computers).
- School Loans. Did your employer cover any student or auto loans that need to be addressed? For instance, employees are usually required to work for a period of time after completing employer-sponsored education, so look to minimize any paybacks you may be responsible for.
- Exit Message. Simply implying it was your choice to resign leaves a lot to the imagination, so agree on an exit message. For example, maybe your employer admits to your strengths in a certain area, but there is little room for advancement due to the size of the company, therefore you had to move on.
When negotiating, start with your biggest requests first such as increasing the severance pay amount or health benefits.
If you start negotiations with a number of small requests like job references, by the time you get to requests that are more significant, your employer may feel they have already bent over backward and be less likely to accommodate your requests.
In addition, if the New York separation agreement contains things you do not want or need, use them to obtain things you do want. Lastly, if you have concerns about how to approach negotiations or want someone to negotiate on your behalf, contact a New York separation agreement lawyer to assist in reviewing your separation agreement and developing a plan for negotiations.
Additional Factors to Consider about Your New York Separation Agreement
Before signing the agreement, consider these additional questions and tips:
- Pay attention to deadlines and do not miss them! If you are under the age of 40, you are not automatically entitled to a 21-day review period unless you are part of a group layoff. If you are interested in speaking with a New York separation agreement lawyer, do not delay.
- Take time to consider what your employer is offering and do not rush to sign the New York separation agreement.
- Review your employment history and termination, and consider whether you have any legal claims against your employer that you could be waiving by signing. This is where an employment and separation agreement attorney can be useful, so do not be afraid to ask for help.
- Consider how the agreement restricts future employment. What are the limitations on who you can work for, where you can work, and what you can do? How does it restrict the use of information you learned while employed?
- In most states, including New York, employees cannot receive unemployment compensation while they are receiving severance pay.
However, if an employer waits to start paying severance until after 30 days from termination, then the payments will likely have no effect on the employee’s eligibility for unemployment. Consider the different options for timing of severance payments and how it will affect your eligibility for unemployment compensation.
- Speak with a tax professional to understand the tax consequences of severance payments.
Losing your job is never easy, but it is critical that you remain professional and keep emotions in check while negotiating a separation agreement. Unprofessionalism can endanger negotiations and, if you remain in the same industry, can jeopardize future work and your reputation. You never know who you will run into on your next project with a future employer.
Review & Consultation
For New York Separation Agreements
We offer a New York separation agreement Review and Consultation. It’s a great way to quickly get legal help with your New York separation agreement. We review your separation agreement and then meet with you in person, or over the phone, to go through your agreement. We point out potential problems and suggest improvements. It takes less than an hour and you will know your options and have a clear step by step plan.
A Review & Consultation is a flat fee of $500.
If it looks like there is an opportunity to improve the terms of your separation agreement, we can contact your employer and negotiate on your behalf, or coach you in the background so you can do the negotiating.
Contact us below to set up a Review & Consultation.