Being laid off or losing your job is hard to deal with. You may feel frustrated, angry, depressed, or frightened at the prospect of having to search for a new job or change careers. In the midst of all this, your former employer may offer you a severance package.
A severance package can consist of a lump sum of money, a continuation of benefits such as health insurance or life insurance, or both. Often, employees feel grateful to receive anything from their employer. However, it is extremely important to be aware of the terms of your severance package and how they could affect you under Colorado law.
Colorado Wage Act
The first thing to be aware of is that the law in Colorado that relates to pay, the Colorado Wage Act (Co. Rev. Stat. § 8-4-101), only applies to “wages and compensation.” Severance pay is not included in that Wage Act as wages and compensation, and the Wage Act does not require employers to pay any severance. Likewise, the Wage Act does not prohibit severance pay – it is simply neutral on the issue.
Legal Issues to Consider
Severance packages can often have important legal consequences. Common clauses that can be included in a severance deal include:
- An agreement that you will not file a lawsuit for retaliation or discrimination;
- A non-compete agreement; or
- A waiver of the right to seek unemployment compensation
Under Colorado law, an agreement between an employee and employer that the employee will not file for unemployment compensation is void. Individuals may not waive, release, or commute their rights to unemployment benefits. Co. Rev. Stat. § 82-10-1.
Likewise, Colorado law looks very unfavorably upon non-compete agreements. The Colorado non-compete statute(Co. Rev. Stat. § 8-2-113) states that non-compete agreements in the employment context are unenforceable unless they are part of a contract that is:
- For the purchase and sale of a business or assets of a business;
- For the protection of trade secrets;
- Providing for the recovery of expense of training or educating an employee who has been with an employer for less than two years; or
- Between executive and management personnel and their professional staff.
Particularly if you were executive or management personnel at your former job, accepting a severance package with a non-compete agreement could have a detrimental effect on your future earnings and your ability to find a new job.
Release of Claims
An agreement that you will not file a lawsuit, called a release of claims, can prevent you from receiving compensation if you were discriminated or retaliated against by your employer. This could prevent you from getting compensation such as:
- Job reinstatement;
- Back pay/wages;
- Punitive damages; and
- Attorney’s fees.
An experienced employment attorney will be able to advise you on whether you have a potential lawsuit that could be barred by a release of claims in a severance agreement.
Have an Attorney Review Your Severance Agreement
If your employer has offered you a severance agreement, it is important to take it to an experienced attorney who can read and understand the fine print, discuss your particular situation with you, and explain how the severance agreement could affect you in the future. Likewise, if you are an employer who offers severance agreements to employees, you may want to have an attorney look over your agreement and explain to you whether it can be improved and if it is enforceable. At HKM Employment Attorneys LLP, we will gladly review your severance agreements and offer you advice based our experience.
If you have questions about a severance agreement, call HKM Employment Attorneys LLP at 303-991-3075 or contact us online today.