Warrenton, OR asked in Contracts and Employment Law for Washington

Q: My workplace laid me off and paid me $500 severance. Now they are saying if I don't sign an NDA I must return it.

Am I legally obligated to either sign the NDA or return it? Email below:

Thank you again for being part of the XXXX team especially in the past few months which have been rocky and trying for all of us. I really thought that we wouldn't need to do any further cuts but it was unforeseen that we would be subject to a cease and desist and receivership, especially given the amazing progress our firm was making. I'm very sorry. I'm writing to you today to inform you that because severance payments could get delayed in bankruptcy court for a few weeks, the Company advanced the severance payment yesterday ahead of filing for Chapter 11 bankruptcy protection. If you choose to execute the severance agreement, then you would keep the advance severance. If you do not execute the severance agreement, then you will be obligated to return the severance payment to the Company. We apologize for any potential confusion, but we wanted to make sure that the severance payments were not delayed.

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2 Lawyer Answers

A: Unless you signed some sort of agreement, you are not currently obligated to either sign the NDA or to return the $500 severance payment. Advancing a severance payment shortly before filing a petition in bankruptcy might create a situation in which the bankruptcy trustee attempts to clawback the severance payment on the ground that it is a preferential transfer. Whether the trustee will do so depends on several facts which are not discussed in your question and which you likely do not know the answer to. As a practical matter, the small size of the payment suggests that, even if the trustee has the right to clawback the payment, the trustee most likely won't bother because the cost doesn't justify any potential reward for the unsecured creditors of the company. Similarly, it is highly unlikely that the bankruptcy court will authorize the company to incur the legal cost of attempting to recoup a $500 payment from anyone for any reason as that will deplete assets available to satisfy the claims of creditors.

1 user found this answer helpful

Eva Zelson
Eva Zelson

A: It is always best to have an employment lawyer review any severance agreement.

However, if you haven’t already agreed to NDA terms in a severance contract, and you accepted the payment without agreeing to any conditions, you are likely under no obligation to return the advance payment. Consult with an employment lawyer to review the paperwork in this case to be sure.

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