As a general rule, employment relationships in New York are at-will. Typically, that means you can be terminated for any reason (or even no reason), so long as your employer is not basing the decision on a discriminatory or retaliatory motive. Despite this general rule, many companies offer terminated executives New York severance agreements to ease the transition for both parties. These payments are almost universally accompanied by extensive written agreements setting forth certain obligations and waiving certain rights. It is essential that executives understand what these agreements entail and how they can be improved. If you need assistance with your agreement, contact our New York severance lawyers.
Understanding New York Severance Agreements
As stated above, employees generally have no legal entitlement to New York severance agreements. However, although there are no general legal rules, there are circumstances under which employers may be required to pay severance.
In the first place, if you have signed an employment agreement—either at the outset of or at some stage during your employment—it may set an entitlement to severance. In some cases, this payment is clearly defined, in others, the entitlement can is contingent on certain factors such as the length of employment or the circumstances surrounding the termination. It is important to consult a lawyer to determine exactly what your employment agreement may entitle you to upon termination.
Even if you don’t have an employment agreement, you may be entitled to a New York severance agreement to the extent your employer maintains clear policies of making payments on termination. Under many circumstances, such policies create a quasi or implied contractual right to New York severance agreements.
Typically, under either an employment agreement or under an employer policy, an employee is only entitled to severance if they have been terminated. In other words, severance is rarely paid out after a resignation. Moreover, employers often do not have to pay severance, even if there is an agreement or policy, if an employee has been terminated for cause. The term cause is not precisely defined, but usually includes criminal convictions, gross negligence, or damaging the reputation of the Company. Again, legal advice is often essential in deciding whether an employer’s “cause” determination is accurate.
How to Improve New York Severance Agreements?
Once an employer has made an offer of severance, the natural question is whether it can be improved. There are several different strategies an executive should consider in approaching such a negotiation, either on behalf of herself or through an attorney. This will be a highly fact-specific judgment based on, among other factors, the circumstances of termination, the length of tenure, and potential legal claims.
The most straightforward way to improve a New York severance agreement is to threaten potential litigation. Almost without exception, a severance agreement will include a waiver of the executive’s right to sue. Therefore, to the extent an executive has a viable legal claim against the employer, it is possible to argue that the amount of severance is not enough to compensate for the loss of that claim.
However, because employment relationships are generally at-will, under many—if not most—circumstances, a terminated employee will not have a potential legal claim to bring. Threatening a former employer with frivolous litigation is a tactic that is very likely to backfire, as the threat is not only likely to be seen as aggressive, but also empty. Under such circumstances, it is generally better to consider a more conciliatory approach. The request for an increase in severance can instead be requested based on the length of service, the value the employee added to the organization, and the difficulties that may be associated with making a transition. Such arguments may not always work, but absent a compelling legal claim, they are more likely to be successful than threats.
Finally, an executive should consider whether either the New York severance agreement or earlier employment agreements have restrictive covenants, such as covenants not to compete or not to solicit employees or clients. These clauses may be unenforceable if an executive has been terminated without cause, unless the employer offers some severance payment as consideration. To the extent the employer values these covenants, it may be a potential basis to increase the offer.
How Else Can New York Severance Agreements Be Improved?
There are many ways New York severance agreements can be improved beyond the bottom-line dollar value of the package. Each agreement is different, and it is therefore important to consult an employment attorney to get specific advice. Such potential areas for improvement include neutral employment references, agreements not to contest unemployment benefits, acceleration of unvested stock options, and outplacement services. Including such provisions may make the decision to accept a severance agreement easier even if the amount is not increased.
If you have a question about New York severance agreements, contact us to arrange a consultation.