Understanding Severance Agreements: Enforceability and Voidability

In the realm of employment law, severance agreements can serve as a legitimate tool,  often signed during times of company transition.  These agreements provide both employers and employees with clarity and closure.

Severance agreements, once signed, typically represent binding contracts between an employer and an employee. They encompass details such as financial compensation, benefits continuation, non-disparagement clauses, and waivers of future legal claims.

Sometimes, these agreement may be presented under suspicious circumstances to unwitting employees who may be releasing important legal rights, such as the right to bring a legal action for wrongful termination, harassment, or discrimination.

In my practice, I’ve had people call with “buyer’s remorse” after signing a severance agreement with a general release of claims, but wanting to cancel it in order to pursue a potential legal action. I usually cannot help because absent certain circumstances, they are not voidable. Below are some circumstances where a signed agreement may be challenged.

Illegal Provisions

One critical consideration is the presence of illegal provisions within the agreement. If any part of the severance agreement violates statutory law or public policy, courts may deem those specific provisions void. For instance, statutes like West's Ann.Cal.Civ.Code § 1599 stipulate that an agreement tainted by illegal elements may still be enforceable if the unlawful parts are severable, and the remaining terms reflect the parties' original intent.

Unconscionability and Duress

Severance agreements can be challenged on grounds of unconscionability or duress. Unconscionability refers to terms that are so one-sided or oppressive that they shock the conscience. Courts assess whether the agreement was entered into under circumstances that unfairly pressured the employee, such as economic duress or lack of meaningful choice.

Specific Circumstances

Each severance agreement is evaluated based on its unique circumstances. Factors such as the employee's understanding of the terms, the presence of legal counsel during negotiations, and the overall fairness of the agreement weigh heavily in legal assessments. For example, courts have upheld a severance agreement where the employee demonstrated clear comprehension and acceptance of its terms.

Conclusion

While severance agreements are generally binding upon signature, their enforceability is not immune to challenge. However, employees faced with signing such agreements should approach them with awareness of their rights and seek legal counsel if they suspect terms are unfair or unlawful before signing.