A severance agreement is a contract between employer and employee documenting the rights and responsibilities of both parties in the event of job termination. Each severance agreement includes a release of claims, typically in exchange for pay and benefits, which is commonly known as a severance package.
Many people mistakenly assume that a severance package is simply a “thank you” from a company to a fired employee. In reality, employers use severance packages and agreements to soften the blow of being fired and provide themselves with insurance against potential lawsuits.
Here’s an example. Last year, when the social gaming company, Zynga, laid off 18 percent of its workforce, one of its former employees took to social media barraging the company. Even though Zynga gave this employee a respectable severance package, he revealed sensitive information about the company, everything from the details of the severance packages to company culture.
This is exactly the kind of scenario employers are trying to avoid. Employers know that a happy former employee is a less litigious former employee. Which is why even though most employers aren’t legally required to provide severance pay, they provide it, anyway. Employers want a problem-free work reduction. They want as few headaches as possible. This also means that they may be more open to negotiation about the terms the severance agreement. So before you go into negotiations about your severance package, consider these things first:
1) Should you settle or should you sue?
If you think you may have a cause of action for employment discrimination on the basis of a protected trait (race, sex, age, disability, etc.), or whether you have some other potential non-discrimination claim (breach of contract, invasion of privacy, defamation, etc.) you should speak to an attorney. A good attorney will be able to tell you whether or not your claim is worth pursuing in court, or if it will provide you with leverage during severance negotiation.
2) Ensure that the terms of the severance agreement will remain confidential.
The details of the severance agreement, if made public, could be unattractive to prospective employers. For instance, if you retained counsel or asserted legal claims, these are things you don’t want your future employer to know. Insist on a confidentiality clause that prevents your previous employer from being able to disclose the terms of the severance agreement.
3) Ask for a positive letter of recommendation.
Ask for your employer to draft the letter, or write the letter yourself and have your employer sign it. Also ask that a specific individual be designated to field all inquiries from prospective employers, someone who would not make statements inconsistent with the text of the letter.
4) Even in a bad economy, you might have more leverage than you think.
Employers want an easy solution to a messy situation. Legally, you’re a liability, so if giving you something you want – even if it’s not already on the table – gets you to sign a release and go quietly, your employer might be willing to make those concessions. A lot of companies have standing policies for severance, but if you’re prepared and resourceful, you might be able to push for a negotiated severance.
5) Do not agree to an unreasonable non-competition agreement.
If you signed a non-competition agreement when you started working for your former employer, you may be able to negotiate for a release from the covenant as part of your severance package.
6) Negotiate your severance pay.
You may prefer a lump sum, but if the payments are made periodically, it may be easier for your employer to continue your health insurance and delay the COBRA start date. Check and see if your employer has written a relevant severance pay plan.
7) Provide for the continuation of your health insurance/COBRA benefits.
Often, employers can provide continuation of health insurance and other medical benefits during a salary continuation period on the same terms as during active employment. If not, there may be an option for you to pay to continue on your current health plan and COBRA. COBRA provides you with the right to continue group health insurance or medical coverage at your existing benefit level and rates for up to 18 months after your off-payroll date.
8) Think outside the money box.
Employers can continue to provide miscellaneous benefits during a salary continuation period such as life insurance, disability insurance and other privileges, like country club memberships and car leasing. Also, if you have any outstanding loans, you may consider negotiating for a release of that debt as part of your severance package.
9) Build your case.
The amount of severance paid is often dependent on how long the employee worked for their employer and what their position was. But some employers have a maximum dollar figure they’re willing to give for severance pay. If you make your case, and make it clear that your financial picture is dire, they’re likely to give you a bigger piece of the severance pie. Additionally, review your work history to see if you’ve done anything extraordinary for the company, like contributing to a critical project or relocating. Anything that will give you more reason to say, “I deserve to be treated fairly.”