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hello my name is Glenn Gaffney of Gaffney and Gaffney PC of Glendale Heights Illinois and my topic is should your client sign that severance agreement so when we talk about severance agreements really the first order of business is to determine whether or not your client has any contractual rights is your client and employee at will or does your client have an underlying agreement that you would need to review to determine what if any contractual rights your client may have let's assume it's an employee at will there's no agreement now the question is is severance a gift is the company just being generous or are there things that you have to watch out for what if the company getting in response to or in consideration for that severance and that'll be the first area of inquiry because really there's no law rule or regulation that requires any company to pay severance so the company what they're getting is a release and other terms and provisions that you will need to review with your client to determine whether or not they should or shouldn't sign it so a written policy or procedure maybe even a handbook provision might create a contractual right to severance if there is then what obligation does your client have to sign anything in order to get that contract all right maybe maybe not but it would have to be reviewed if there is no policy or procedure some people say well what about precedent they've paid other people's severance courts have held precedent really doesn't work although an argument could be made that a failure to pay a certain type of person whether older or female things of that nature could be an eclaim for discrimination now in any severance agreement there's going to be a release and waiver and that is the most important thing to review with your client what in fact are you releasing you could be releasing any rights to a bonus you could be releasing in commissions you could be releasing various claims which would include discrimination claims which would include contractual claims which would include whistleblowing claims what is the value of those claims so a complete analysis would need to be made as to what if any claims your client may have because for example with Commission's the client may be subject to the procuring cause rule which means a signature on a release and waiver would would waive past present and future commissions same thing with other claims that might relate to overtime claims under the FLSA vacation pay things of that nature so clearly the release a language would cover all those claims so is your client getting fair value for whatever amount is being proposed if not a demand letter should should issue in and suggest that the severance isn't sufficient and we have claims here and we need to negotiate those claims another area of concern typically is the area of restrictive covenants now the first order of business is to determine what if any restrictive covenants are already out there and how does this agreement play into that does this agreement incorporate other agreements by reference or maybe this agreement would supersede any preceding agreements which might be a good thing now when we talk about restrictive covenants one concern is always who is defined as the employer in the agreement itself because oftentimes it's a broad-based definition would not not only include the entity that your client believes he's working for but also subsidiaries affiliates parental companies that could be a very broad-based number of entities that now your client is signing an agreement that contains restrictive covenants that includes all of those companies and when we talk about restrictive covenants you have to keep in mind that you have to review that in terms of not only what the employer says is confidential or trade secrets which really may not be potential or trade secrets but also things such as covenants not to solicit other employees covenants not to solicit customers or even vendors and most importantly covenants not to compete and how long is that covenant not to compete are you getting fair value and in the severance agreement so now your your client cannot engage in his business or livelihood in a particular area that may well not be worth it and therefore signing a severance agreement could have long-term implications particularly as it relates to these restrictive covenants now some other areas that typically lawyers need to review is the manner in which the severance is going to be paid is it lump sum or are their payments over time typically you would prefer a lump sum payment however payments over time could be beneficial if they also include cobra payments because your client is going to probably get a cobra notice and have to pay cobra insurance out of his own pocket 102 percent so if you can negotiate some cobra payments in addition to the severance amount particularly if there's payments over time as opposed to lump sum that could be very beneficial to your client another concern is whether or not this agreement impacts any ERISA rights we talked about your risk of meaning 401k pension insurance the answer is typically no ERISA has its own body of law and these agreements typically does not impair your clients rights there are subject to ERISA benefits however violations by your employer of fiduciary duty in the past or for example if your client was terminated immediately preceding a large ERISA benefit those types of claims can be waived because they're not subject to the law of trust at yarissa governs and therefore the consideration that your client is giving may include a waiver of those claims some other provisions that would likely be in a severance agreement is a no rehire provision but why is that necessary why does your client precluded from not applying back to this company particularly if the definition of the company encompasses other affiliates and other entities a cooperation provision might be included what about the expenses that your client incurs in cooperating with the company should your client be called upon to cooperate and then there's usually a non-disparagement provision where the employer doesn't want your client to be making disparaging remarks on Glassdoor or in blogs or on the internet or on Facebook understandably so but is it your client also entitled to some degree of non-disparagement at a minimum your client needs to know what the reference will be to the extent that prospective employers of your client contacts this employer for a reference so your client can rest assured that he has a contractual provision regarding references additionally there might be a provision to the benefit of your client that they might afford your client some outplacement services that could have value to your client but your client may not want it or need it so you might be able to negotiate a lump sum amount for the cost of the outplacement services in exchange for that right you'll need to take a look at the remedies provisions as well be very careful of liquidated damages provision some are so harsh that they'll claim that if your client breaches anything within the agreement whatsoever your client has to refund all the money or some such other hefty liquidated damages provision that would not be something that you would like your client to agree to also remedies regarding attorneys fees you're looking for neutrality here if there's litigation rising out of an alleged breach well maybe the losing party should pay attorneys fees and that habit just be one-sided so that if the employer claims and succeeds in having a finding that your client breached anything that your client would be solely responsible alternates all attorneys fees but if there's litigation and they lose they should pay the attorneys fees that's fair what about venue you want venue to be in your home court not New Jersey or New York or some such other place what law are we applying to this agreement we want to apply Illinois law that's our law we know our law we can research our law and that's the law we want last but not least you should always have a discussion with your client regarding taxes and the tax implications of this money severance money typically is taxed at the w2 rate it's like your client gets a large bonus from work you can explain it that way and if you think about it that's a hefty tax that type of money would be taxed probably when it's all said and done at a forty to forty five percent rate by the time we figure federal state a federal tax state tax Phi Cup Social Security Medicare all of that by the time you're done rises to the level of about 42 percent now maybe just maybe especially if you get into a negotiation game with the employer you can have some of the money go to 1099 some of the money to be going to your fees and costs and then only a balance subject to w2 withholding that would probably have better tax implications for your client because at least some of the money would be subject to a 1099 miscellaneous box 3 and the ultimate tax liability although it's still taxable income could be more favorable but always tell your client to consult with his own tax professional well I hope this little video was of some help to you I am a member of the Illinois State Bar Association see Asian labor and employment law section counsel and take a look at the website you'll see the address here and I invite you to become a member of our section and get our newsletters which are numerous and sometimes lengthy but I think you'll find they're very helpful and we certainly invite you to make use of all the isba benefits available thank you