Hack that severance agreement!

Hack that severance agreement!

An Employment Severance Agreement Explained in Detail

Source: Carey & Associates, PC
By Mark Carey

severance agreementWhether or not you use an employment attorney to review and negotiate your employment severance agreement, you need to know the mechanics of the agreement. Generally, all severance agreements accomplish one task, paying employees to release their claims against the company in exchange for money and confidentiality. I have seen thousands of these agreements in my twenty-five years of practicing employment law for employees and executives. They are all relatively the same in the terms, but differ in their layout.

Every severance agreement contains a non-disparagement clause, but one only applicable to the employee and not the employer. We advise clients to include a mutual non-disparagement clause to be signed by the employer so it does not engage in blacklisting, which is a very real phenomenon.

We often see employers sneaking into severance agreements brand new non-competition and non-solicitation provisions where none previously existed during the employee’s employment… The following discussion will go in depth and explain the legal terms in an understandable way…

 

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Nick’s take on the severance agreement

My buddy Mark Carey, a leading employment attorney who represents only executives and employees (not employers), shows you how to hack that severance agreement. You don’t need to hire Mark to get his insights and advice about how to protect yourself when you part ways with an employer — he shares a lot here! I learned a couple of things myself. (Don’t miss Mark’s column about employment at will on Ask The Headhunter.)

What’s your take? Do you have a severance agreement? Has one ever hamstrung you? Got a horror story? How about a positive experience with a severance deal? Let’s dissect these agreements!

 

 

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Should you sign an NCA? Not so fast!

Quick Question

sign-thisI was offered a job with a small tech company. The NCA that they asked me to sign was so broad that it would have prevented me from taking a job with any other company writing embedded software. When I balked at signing it, they told me I would have to talk to to someone in their legal department.

I walked into their lawyer’s office and explained my objections. His reply: “If I were in your position, I wouldn’t sign that either. Let’s strike out the paragraphs you object to.” What do you think of that?

Nick’s Quick Advice

This is an instructive story about NCAs (non-compete agreements). Thanks for sharing it. It’s also a good lesson about negotiating job offers. It’s not just about the money!

People don’t always believe me when I tell them NCAs (and NDAs, or non-disclosure agreements) are very often negotiable, mainly because they’re ridiculous, and the legal people who write them know it.

These employers figure no one would question or refuse to sign “a necessary legal document” — especially when a new job hinges on it. And most job applicants wouldn’t dare. The lawyers go overboard and include terms and restrictions “just because they can.”

It makes you wonder how many people before you signed that thing simply because they felt intimidated.

I’d love to ask that lawyer whether he thinks it’s ethical for his company to keep using that document, and whether — now that he’s acknowledged how ridiculous it is — he’ll cancel NCAs that other employees have signed and produce a more reasonable agreement.

Or maybe the employer should just fire the lawyer who wrote it and behave more responsibly toward its employees and the people it’s trying to recruit.

I won’t even get into my opinion of an employer that can’t explain an obligation it wants a job candidate to sign — without sending you to its lawyer!

For more about NCAs, see How can I negotiate an NCA or NDA?

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How can I negotiate an NCA or NDA?

In the June 21, 2016 Ask The Headhunter Newsletter, a reader doesn’t like giving up future opportunities by signing restrictive agreements.

Question

First of all, thanks for writing your columns and educating us folks out here. If we ever form a union, you’ll get my vote for union leader! Anyway, I was wondering about non-competes and NDAs. I know you’re not a lawyer, but I’d like to hear your thoughts on the subject.

valueI can understand why companies want and need non-competes and NDAs, but I feel signing such contracts limits my future job opportunities; at least the ones that would pay me the most. So, I could refuse to sign, and they can refuse to hire me. If I want the job, it seems I’ve gotta bite the bullet. Perhaps I could sign the contract as “Darth Vader” and they won’t notice.

Is there a fair, balanced deal that I could make here? Thanks for your thoughts.

Nick’s Reply

Ouch, you’re hitting a nerve. Non-compete and non-disclosure agreements (NCAs and NDAs) are a sore spot with me because I believe they’re over-used, misused and too often signed. Nonetheless, both documents are becoming more common. Heck, they’re such boilerplate that you might be right — you could sign as Darth Vader and they might never notice! Some companies might just file the darned thing without looking at it any more carefully than they expect you to. But, don’t bet your future on that.

What’s an NDA or NCA?

For those who don’t know what we’re talking about, an NDA is an agreement you sign as an employee prohibiting you from divulging sensitive company information while you work at the company and often after you leave. When you sign an NCA you agree not to compete with your employer (now and when you leave) by soliciting its customers, going to work for a competitor, or through other actions. Sometimes, an NCA and an NDA are rolled into one document.

I think companies often use NCAs and NDAs for no other reason than because “everyone else does it.” The fact is, these agreements are very controversial. In some states NCAs are illegal because they restrict a person’s right to earn a living. Nevertheless, when you take a job, it’s up to you to protect your rights.

There are some legitimate reasons for a company to ask you to sign such agreements; for example, when you’ve worked on a sensitive trade secret that, if leaked, could cost the company a lot of money. It’s up to you to decide what’s reasonable, or to discuss it with an attorney who represents you, not the company.

Negotiate the terms

There’s no reason to get into an argument with a prospective employer about an NCA or NDA. The best thing to do is negotiate it. Because these agreements are often legal boilerplate, a company that really wants to hire you may be willing to negotiate specific terms that you object to. You may be able to get both the compensation deal you want and a comfortable agreement.

Your goal with an NCA or NDA is to limit the constraints. Here are some terms to negotiate:

  • Geography: A 100-mile radius of non-competition may be reasonable, but a blanket “all of the U.S.” or “all the world” is just nuts.
  • Term: One year may be acceptable, but a five-year restriction is not.
  • Competitors: Prohibiting you from working for any company in an entire industry is extreme. Try to get them to list specific companies by name. Make sure the list is short and realistic.

In light of the limit that an NCA or NDA might place on your future job opportunities, I recommend getting quid pro quo. That is, get fair value for anything you relinquish — and work this out before you accept a job, not after you’re on board. An employer has no incentive to re-negotiate an overly restrictive NCA or NDA after you’ve already joined up.

Trade fair value

When a company wants an NDA or NCA to protect its interests, then you should get something to protect yours. Always trade fair value. If a company is going to restrict your ability to earn a living, it should compensate you reasonably.

Get a contract.
If you agree not to go work for a competitor for a year (by signing an NCA), then don’t agree to work “at will,” whereby the company can let you go any time it wants. In exchange for signing an NCA, request an iron-clad employment contract. That way, if the company terminates you, it agrees to keep paying you through the end of your contract. The NCA gives the company protection (perhaps for a year), and the employment contract protects you (for a year also). By asking for a year, you might be able to get six months’ pay, if you consider that sufficient.

Get a severance deal.
Another quid pro quo for an NCA or NDA is a significant guaranteed severance deal. Ask for it, since your choice of next employers will be limited. Negotiate a severance package as a form of compensation for relinquishing your right to compete or to “talk about your work.” (Be careful: A blanket NDA can actually restrict you from talking about work you’ve done that is not even proprietary to the company!)

What might be in a severance package varies. Usually, severance is one week’s pay for each year you worked at a company. But in this case, we’re not talking just about severance; we’re talking about a special deal that compensates you for relinquishing some of your freedom. In my opinion, if you sign a one-year NCA, the company ought to cover you for at least a year after you leave, or until you land a new job that does not violate the agreement. (If that sounds extreme, so is an NCA!)

If the company’s not willing to compensate for protection, then it should not require an NCA or NDA. It should instead keep better control over its proprietary information and avoid divulging to you anything during your employment that might compromise the company when you leave. It’s up to the company to manage its assets — not you.

If any of this perplexes you, it’s smart to consult an attorney. It will cost far more to defend yourself later than it will to protect yourself now. (For some valuable insights from my favorite attorney, Bernie Dietz, see Employment Contracts: Everyone needs promise protection.)

Thanks for your kind words about Ask The Headhunter. But, no thanks — don’t elect me as your union leader!

Have you ever signed an NCA or NDA? Did it come back to bite you? Or, did you negotiate compensation for a fair restriction? How would you advise this reader?

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2 Rules About Working for Start-Ups

In the July 21, 2015 Ask The Headhunter Newsletter, a reader is in a pickle — er, start-up — without a salary, and without protection on the upside or the downside.

Question

Your advice in the newsletters is brilliant. However, I haven’t seen you say much about start-ups. I’m in my 50s and enjoy the chaos of a new company. I have been doing it for nine months, and I love it. I am not getting paid, or receiving any benefits. The company has been getting exposure, and a few small projects, but no investment backing. That means no money. The CEO continues to tell the development team, the editors, and writers that “we are so close.”

bait-and-switchShe also mentioned they are moving to Silicon Valley, but will be using distributed-teams software to push more projects out.

The problem is that my budget and time are expanding. I am worried that my “job” will be lost by their move. I have only a handful of e-mails outlining the stock certificates, with promises of full-time employment when investors come through. However, I have nothing legal or tangible to suggest they are serious.

I’m ready to quit, but need some guidance. How do I approach her about my concerns without questioning her integrity? Should I suggest several options that have some legal teeth that protect me? So far I have all the risk while she continues to pump out projects. Thanks!

Nick’s Reply

There are two good reasons to work at a start-up:

Why work for a start-up?

One, you’re an owner with ironclad shares that cannot be diluted without your approval. If the company takes off, you’ll get your reward. If it doesn’t, you at least had a deal that protected your upside.

Two, you’re an employee being paid a fair (if not good) salary, and you’re expected to work hard over and above anything resembling “reasonable” — because you have some shares and stock options as a reward if the business takes off. Your salary protects your downside.

If you’re working at a start-up under other circumstances, I’m sorry to tell you that you’re probably a chump — unless you’re independently wealthy and love that kind of work.

I’ve got two rules for working at start-up companies.

Rule #1: Don’t get screwed

star-wars

I love start-ups. Been there, done that, had great experiences… except the time I got screwed because I had nothing in writing. When the founder decided to bring in other investors, my 250,000 shares were instantly diluted down to virtually nothing. (See Start-Up Stock: What’s it “sort of” worth?) The first rule when joining a start-up is don’t get screwed. Invest in legal and accounting advice to protect your up- and downside.

Let’s discuss how to handle your boss. You’re being naively nervous about offending a founder that you’re giving free work to. It’s time to make it legal.

I’d sit her down without any apologies and without hesitation in your voice.

How to Say It
“I’m excited about what we’re doing and I love the work. However, this is a business proposition — I’m working for free for equity and the promise of a full-time job. I think it’s time we put this in writing for our mutual protection.”

If she indicates any problem with that, then I think you’re being taken for a ride, and that you’ll be summarily dumped by the side of the road. She should be apologizing to you and extending every courtesy — you’ve been working for free with no written assurance of any reward!

You might want to talk with other “employees” to see how they feel — and to find out whether they have contracts. You all need them. You may want to speak with her as a group. But in my opinion this has already gone too far. You’d be pretty upset if she took advantage of all of you at this point — so don’t fret about having this discussion.

Rule #2: Don’t get screwed

Before you do that, I’d talk with an attorney. (See Employment Contracts: Everyone needs promise protection.) Equity deals and contracts with start-ups are complicated and fraught with risk. If it’s not worth the legal fee, then how can the promise of this job be worth anything? Please take this seriously.

The other issue is that if and when investors come in, your boss will have very little to say about your equity share. Investors don’t like seeing their shares diluted. You could wind up with very little, if anything, if you don’t have a solid contract now — and the right kind of shares.

I don’t mean to scare you, but I’ve seen this again and again. Even a well-intentioned founder can wind up hurting the team that poured its blood and sweat into the business. Working with no contract is totally imprudent and un-businesslike. I’d get to it asap. Did I caution you not to get screwed?

Don’t forget about IP (Intellectual Property) rights. Have you signed an NDA or NCA? Have you signed over any IP rights to anything you’ve developed? Your boss could be screwed, too, without these. It’s another reason you need a good employment lawyer.

Get compensated

My philosophy is, get value for value. Your work is valuable. Ask for salary, and ask for equity. I don’t think suggesting “several options that have some legal teeth” will help you unless you talk to a lawyer first. This is easy: Just tell her it’s time for a written, signed agreement — and stock certificates. Something tells me that’s when she’ll tell you you’re not part of the move — though I hope I’m wrong.

Before you quit, give your boss a chance to protect your investment in this business by compensating you fairly for the risk you’re taking. Get compensated. That’s not a rule; that’s good business. Do your best to prepare yourself in advance. These Ask The Headhunter PDF books will help you with your “boss”:

Fearless Job Hunting, Book 6: The Interview – Be The Profitable Hire. This works even when discussing salary with your current employer!

Fearless Job Hunting, Book 7: Win The Salary Games (long before you negotiate an offer), especially “The Pool-Man Strategy: How to ask for more money,” pp. 13-15. Sometimes it helps to ask casually!

Fearless Job Hunting, Book 8: Play Hardball With Employers, especially “Due Diligence: Don’t take a job without it,” pp. 23-25. This is a must when considering a job at a start-up, though this section applies to established companies, too.

Fearless Job Hunting, Book 9: Be The Master of Job Offers, especially “Non-Compete: Did I really agree to that?”, pp. 5-7.

There’s a lot more to start-ups, of course. (See Ben Slick’s excellent article, Evaluate a Start-Up Job Opportunity Like a Venture Capitalist.) If something I’ve said is helpful, I’m glad. I’d love to know what you decide to do and what comes of this. Thanks for your kind words about Ask The Headhunter!

For those considering the excitement of working at a start-up, if it’s what you really want to do, don’t be dissuaded by risk. As this reader points out, it can be an exciting experience. Just follow my two simple rules, and make sure you protect yourself on both the upside and the downside. I hope you get rich, but don’t end up losing your shirt.

(If you’re thinking about making the leap to starting your own start-up, learn more about Trading Your Job For Venture Funding.)

Have you ever worked for a start-up? How did it turn out? Did you protect yourself? (Did you get rich?) How would you advise this reader?

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The HR Gantlet: How to leave your job without getting hurt

In the June 30, 2015 Ask The Headhunter Newsletter, a reader is faced with the HR gantlet on his way out the door.

Question

I’m leaving my company and HR is asking me to sign all sorts of forms and documents. I’m faced with reams of legal-ese! I’m worried they’re going to slip in something that hurts me later. I also want to make sure I get documents that I might need later, and I want to avoid doing anything that might get me sued. Do you have any tips so I won’t get hurt while I make my way through the HR gantlet on the way out the door?

Nick’s Reply

gantletThe path out the door, whether you quit or have been fired, is usually rushed and HR goes into high gear issuing orders and giving you paperwork to sign.

Some of the paperwork is for your own protection. For example, insurance and retirement account information. Some of it can indeed hurt you later. I can’t walk you through everything in a newsletter, but I can touch on some gotchas you should be aware of.

This is from the “Crib Sheet” section of my PDF book, Parting Company: How to leave your job, pp. 67-73.


  • If you were fired after being put on a Personal Improvement Plan (PIP), obtain copies of relevant documents. Even if you don’t expect to take legal action, you may change your mind and your lawyer will need the information.
  • If you are given a letter of separation that requires you to sign off, consider having an attorney review it before you sign. Don’t forfeit your rights in an effort to exit quickly. Protect yourself.
  • Don’t leave your personal stuff in your office. Upon termination or resignation, you may not be able to retrieve it easily. Some employers will lock you out and pack what they believe is yours and ship it to you later. (See “Get your stuff,” p. 46.)
  • Don’t use company technology to store personal information. If the laptop and phone belong to the company, so does what’s stored on them.
  • If you work in sales, discuss who owns your customers and contact lists. Keep what’s yours, but don’t take what belongs to the company.
  • If you’ve been involved in inventions or patents or proprietary information, make sure you understand who owns the rights. Be aware of any restraints you may have already agreed to, e.g., Non-Disclosure Agreements (NDA). Retain copies for your files and possibly for your attorney.
  • If you’ve signed any Non-Compete Agreements (NCA), make sure you understand the restraints. NCAs usually define a time period, geographic region, named customers you may not call on, and other terms. Retain copies. [Note: NCAs are not legal in some jurisdictions. Employers want you to sign them anyway. Also be careful with NDAs — Non-Disclosure Agreements.]
  • Do you anticipate a lawsuit for wrongful termination, age or sex discrimination, or sexual harassment? Before you do anything pertaining to your exit, consult an attorney. What you say or do during the exit process might be used against you. Don’t limit your options carelessly.
  • Throughout your exit process, carry a notebook. Make it clear to HR that you are taking notes about commitments and representations made to you. To put it bluntly, this encourages HR to take it all more seriously—and it keeps everyone more honest.

If you think you may need legal advice, don’t dawdle. Start by identifying good employment lawyers through trusted referrals, and inquire what the fees are. An initial consultation often costs nothing, or very little. Compare that to the cost of parting company without legal assistance.

There are many daunting challenges and choices you probably don’t realize you’ll face during this awkward time.

  • Do you know how to resign? (p. 40)
  • Should you consent to an exit interview? (p. 53)
  • Did getting fired shatter your self-confidence? (p. 12)
  • Should you accept a “package” to quit your job voluntarily? (p. 26)
  • What’s the truth about counter-offers? Should you accept one? (p. 50)
  • How can you prepare for the shock of a downsizing? (p. 20)
  • Is outplacement a big, costly mistake? (p. 28)
  • How do you explain to a new employer why you left your old one? (p. 58)

Reprinted from Parting Company: How to leave your job, pp. 67-73.


I hope these few tips cover some of your bigger concerns. When I wrote this book, I spoke with some of the best HR folks I know — and some of their warnings surprised me. Parting company can be a trying experience, so be careful.

The last bit of advice I’ll give you is this: Be on your best behavior on the way out the door, no matter how your employer behaves. Do the right thing, be professional, be cordial — but protect yourself.

Parting company can be a friendly experience, or you can get burned. What’s your experience been? When you left a job, did you encounter any nasty surprises you’d like to warn others about? Or, did your old employer do something nice during your departure?

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Who will lead you to your next job?

In the July 16, 2013 Ask The Headhunter Newsletter, a reader asks what to do after getting screwed by a long-time employer:

After ten years, my sales performance at my company started topping the charts. The boss could not understand how I did it, but it was the personal attention I gave my customers. I did all I could to help them be more successful themselves. One day I brought on a big new client and closed a record-breaking deal worth millions. A few days later, my boss fired me. My confidence was shattered. I’ve been working the job postings but I’ve been out of work for months. Where do I go from here?

Nick’s Reply

Unless you did something unethical (or illegal) that you’re not telling me, my suspicion is that you got fired because your employer doesn’t want to pay the kinds of sales commissions you are earning. That’s silly — everyone’s making money and the customer is happy. But I’ve never been able to understand a company’s resentment against successful sales people.

screwedThis happened once to me. I took a sales management job under a very aggressive commission plan. The head of sales designed it, and I accepted it. It was so aggressive that there was no salary or draw. It turns out they never thought I’d make the plan work for me. I was making so much money (for them and for me) that they cancelled the plan. I quit.

If this is your story, I don’t know why it would shatter your confidence. I’d talk with a lawyer to determine what (if anything) you’re owed for closing the deal.

It’s not uncommon for sales companies to fire a top sales rep and turn big accounts over to junior salespeople who are paid far smaller commissions.

Here you’ve been in this particular business for ten years, and you’re desperately using job postings to find a job! Cut it out! You’re wasting your time. Use the ten years of excellent contacts you’ve got! (Please don’t say, “I don’t know anybody,” because you do!)

Sit down and make a list of your best customers — companies and specific people you’ve worked with at big companies and small ones. Review the quality of your relationships. Think also about what companies they do business with — their customers, vendors, consultants and other professionals. Make a list. (If you’re reading this and you don’t work in sales and you don’t have customers, then some of the other people you encounter through your work are potential employers and potential sources of referrals to a new job. Where do you think good headhunters find new clients and great candidates?)

Note: If you have Non-Compete or Non-Disclosure Agreements (NCA or NDA), make sure you don’t violate them. Talk with a lawyer. (Ouch. That’s twice I’ve recommended lawyers in one column! You don’t think lawyers can help? Read Employment Contracts: Everyone needs promise protection.) I think it’s worth at least an initial consultation to understand your position before you take action.

Your former customers are people who know you well and respect you. These are the kinds of references you can use. Call them. Don’t ask them for a job. Tell them you’re going to work only for a top-notch company — big or small — and you would value their advice. What companies do they respect? Which ones would they recommend to you?


What do you do when a friend refers you to a company? That’s when the fun starts — and that’s when you must get to work! Fearless Job Hunting Book 5: Get The Right Employer’s Full Attention delivers the obstacle-busting answers you need:

  • Don’t walk blind on the job hunt
  • How to make up for lack of required experience
  • Is this a Mickey Mouse operation?
  • Age discrimination or age anxiety?
  • How to deal with an undeserved nasty reference
  • Scuttlebutt: Get the truth about private companies
  • And more!

Overcome the daunting obstacles that stop other job hunters dead in their tracks!


You may find yourself referred to a competitor of your last employer. Or there may be a department in one of your old customer companies that’s dying to hire you. Or an old customer may have a customer who needs you.

Why waste time with the unknown? That’s what the job postings will get you. Focus on the people who already know you, and with whom you have good relationships and something in common.

The job market is not just job postings and want ads. It’s people. Focus on the ones who care about you because you have treated them well. They will help you if you let them.

Has anyone used this approach, whether in sales or any other line of work? I think it’s the best “insider” method for meeting your next boss!

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