When employment ends whether through a layoff, restructuring, or negotiated departure employers often present departing employees with a severance agreement. These agreements typically offer compensation or benefits in exchange for the employee agreeing to certain legal terms.
Before signing, however, employees should understand that a severance agreement is not simply an administrative formality. It is a binding legal contract that may affect your rights long after you leave your job. In many cases, signing a severance agreement requires employees to waive potential legal claims against the employer.
For that reason, employees should carefully review the agreement and fully understand its implications before signing.
A severance agreement sets the terms governing the end of an employment relationship. In exchange for compensation, often referred to as severance pay, employees typically agree to certain conditions that benefit the employer.
Common provisions in severance agreements may include:
Employers frequently offer severance agreements during layoffs, company restructurings, position eliminations, or negotiated separations.
Because severance agreements often require employees to waive potential legal claims, understanding the legal framework surrounding these agreements is critical.
In most cases, New Jersey employers are not legally required to provide severance pay. However, there are several important exceptions.
If an employment agreement, executive contract, or written company policy promises severance benefits, the employer may be legally obligated to honor that commitment. Under basic contract principles, these promises may become enforceable agreements.
New Jersey courts have long recognized that employment agreements must be supported by adequate consideration, meaning each party must receive something of value in exchange for their obligations. See Martindale v. Sandvik, Inc..
Severance pay may also be required under the Millville Dallas Airmotive Plant Job Loss Notification Act, commonly known as the New Jersey WARN Act.
This law applies to certain large-scale layoffs and business closures involving employers with at least 100 employees. When a covered employer conducts a qualifying mass layoff, plant closing, or transfer of operations, affected employees are generally entitled to severance equal to one week of pay for each full year of service.
If the employer fails to provide the required notice before the layoff, employees may be entitled to additional compensation under the statute.
More information about the law can be found here - https://www.nj.gov/labor
Like any contract, a severance agreement must be supported by consideration. This means the employee must receive something of value in exchange for the promises being made.
For example, if an employee is asked to waive legal claims, the employer must offer benefits that the employee was not already entitled to receive, such as severance pay or extended health coverage.
Employees who are age 40 or older receive additional protection under the Older Workers Benefit Protection Act when asked to waive claims under the Age Discrimination in Employment Act.
Among other requirements, the agreement must:
Failure to comply with these requirements may render the waiver unenforceable.
Learn more - https://www.eeoc.gov
Under N.J.S.A. 10:5-12.8, provisions that attempt to conceal details of claims involving discrimination, retaliation, or harassment are generally against public policy and unenforceable.
If an employee publicly discloses details of such a claim in a way that reasonably identifies the employer, the nondisclosure provision may also become unenforceable against the employer.
The New Jersey Supreme Court reinforced this principle in Savage v. Township of Neptune, emphasizing that the state’s public policy favors transparency in workplace discrimination matters.
This law does not prohibit employers from protecting legitimate confidential information, such as trade secrets or proprietary business data.
Another provision of the New Jersey Law Against Discrimination, N.J.S.A. 10:5-12.7, prohibits employment agreements that attempt to waive substantive or procedural rights related to discrimination, retaliation, or harassment claims.
Severance agreements must also comply with New Jersey wage laws. Under N.J.A.C. 12:61-1.6, settlement agreements that violate wage payment requirements may be deemed null and unenforceable.
Some severance agreements include non-compete or non-solicitation clauses that limit an employee’s ability to work for competitors or solicit former clients.
New Jersey courts will enforce restrictive covenants only if they are:
For example, the Appellate Division addressed the enforceability of restrictive covenants in ADP, LLC v. Kusins.
Many employees assume that severance agreements are final offers that cannot be changed. In reality, employers often expect some level of negotiation.
Potential negotiation points may include:
Employees should strongly consider consulting an employment attorney before signing a severance agreement when:
A severance agreement is more than a routine HR document; it is a binding legal contract that may significantly affect an employee’s legal rights and future employment opportunities.
Before signing any severance agreement, employees should carefully review the document and understand the rights they may be waiving.
You may contact Chris Heyer at cheyer@scura.com or call (973) 696-8391 to schedule a consultation and discuss your situation.