When troubled startup Zenefits said last month that it was cutting 250 people from its payroll, it announced an exceptionally generous severance package.
Business Insider has seen a copy of the severance documents and can verify that the terms are far above average, although they are not completely straightforward.
But we talked to one employee who worries — perhaps unnecessarily — that the package comes with a catch.
Zenefits publicly said that it would give employees:
- Three months' severance pay, including paying for estimated commissions or other incentive pay.
- Six months of COBRA transitional health-insurance coverage.
- Some job-placement assistance.
According to the document and to sources, all employees are being given two months of "on target pay", which includes base salary and, if appropriate, projected commissions; and a lump sum to cover two months of COBRA. In addition, unvested stock options will continue to vest.
But in order to get the additional promised severance, employees are being asked to sign a severance agreement.
If they sign it, they get a lump sum worth thousands of dollars that covers the third month of pay plus estimated bonus/overtime/commission pay. Signing the agreement also gets them four more months of COBRA, and one month of job-placement assistance.
One employee we talked to was suspicious about the big payment in exchange for signing the agreement.
This person worried that if former employees get embroiled in any of the company's legal compliance issues in the future, the agreement meant that they would be on their own to cover the legal costs.
The catch
The agreement uses what appears to be standard language. It asks employees to agree that the company doesn't owe them anything else and to waive all claims against the company, known and "unknown."
Such a standard waiver would not leave employees out in the cold for future legal problems, according to employment litigation attorney Scott Bonagofsky.
He has not reviewed the Zenefits agreement, but told Business Insider that such standard release agreements "only cover claims incurred in the past, not in the future."
In other words, if an employee has already accumulated legal fees and doesn't submit them to the company before signing the agreement — even if the employee didn't know about the legal fees — the employee is out of luck and on the hook to pay those fees.
But if the employee winds up hiring a lawyer in the future because of work done at the company, then the waiver would generally not cover that new expense. The employee can ask Zenefits for reimbursement, or sue for it if necessary, Bonagofsky says.
The severance agreement also includes a "non-disparagement clause" in which the employee agrees not to "disparage" the company, its officers and executives, or its products in a "negative light."
It's not unusual for a company to include such a clause, but given Zenefits' rocky history, it's easy to see the motivation for it in this case.
Even so, the upshot is that Zenefits appears to be treating its dismissed workers as well as it promised to do.
Zenefits could not be reached for comment.
