Negotiating A Severance Agreement: Tips By An Employment Attorney

Jan. 25

How to Negotiate Your Severance Agreement

Losing your job can be a devastating experience. But if you're lucky enough to receive a severance package, it's important to know how to negotiate the terms of your agreement. In today's blog post, we'll give you an overview of the basics of severance agreements and offer some tips on how to get the best deal possible.

The basics of severance agreements.

A severance agreement is a contract between an employer and employee, in which the employer agrees to provide the employee with certain benefits or payments after the termination of their employment. These benefits may include continued health insurance coverage, financial compensation for unused vacation days, or a lump sum payment. The terms of a severance agreement are typically negotiable and will vary depending on factors such as the length of employment, position held, and reason for termination. But remember, under most circumstances, severance is a gift. This means that one dollar ($1) of severance may be $1 more than what your employer is obligated to give you. We cover this idea in more detail below.

What do severance agreements typically include?

Severance agreements may include some combination of the following:

Continued health insurance coverage (or payment of all or a portion of your health premiums, such as COBRA or state coverage).
Payment for unused vacation days* (*note that in some states and under certain employment agreements, payment for unused vacation days may be required under the law, regardless of whether you agree to sign a severance agreement).
A lump sum payment (the "severance payment" which is offered in exchange for you releasing your claims).
Outplacement assistance (to help you find another job).

When is the best time to negotiate a severance agreement?

Before Employment

Ideally, the best time to negotiate a severance agreement is before accepting a job offer. This way, you can be sure that you're getting the best possible terms from your employer in the event you separate from working there sometime later. While in practice, it is most common to see severance packages negotiated at the job-offer stage for executive-level employees, there is no general legal requirement that only executive-level employees have a pre-negotiated severance agreement.

Ideally, if you are negotiating a severance package before you accept a job offer, the employer has provided you with the full terms of the severance agreement you would be offered. More typically, however, we see situations where an employer has agreed to a certain amount of severance package for an employee who is separated "without cause" (through no fault of their own) upon the employee's execution of a severance agreement under "terms determined at employer's sole discretion."

What is the problem with an employee agreeing to this scenario? Yes, you have the promise of severance if you are laid off or terminated without cause, but only if you end up signing an agreement that you have never seen. When the terms of your severance agreement package are not negotiated up front, you may run into surprises later. For example, an employer may require you to sign a non-compete or non-solicit as part of the severance offer (in states/scenarios where permitted) or agree to other non-monetary terms you may have not been expecting.

If you are an employee who is negotiating the terms of your severance before accepting a job offer, it is best to also work out the full language of your severance package at that time, as well. Ideally, your employment agreement would lay out the scenarios in which you may be entitled to severance and the full severance agreement is included as an addendum to your employment agreement. No surprises for anyone.

While Employed

If you're already employed, you can still negotiate a severance agreement at any time; however, it's generally best to do so before experiencing any type of conflict with your employer that could lead to your termination or your need to separate. Current employees who are adding value to a company may find opportunities to negotiate a severance agreement as part of a bonus package, promotion, or other conversation where employee perks are being negotiated.

How to negotiate your severance agreement.

Before you start negotiating your severance agreement, it's important to do your research and understand the basics of what a severance agreement is and what it typically includes. This usually varies state-to-state and industry by industry.

Generally, the following notes may be applicable to any situation to give you a good foundation to start from and will help you know what to expect during the negotiation process.

Know your worth.

It's important to know your worth as an employee (or future employee) and to have a realistic idea of what you should be asking for in a severance agreement. This means taking into account things like how long you've been with the company, your job title and responsibilities, and the current job market conditions. It is also important to understand industry or market norms. If possible, it can be helpful to consult with an experienced employment lawyer before starting negotiations.

Be prepared to compromise.

Once you've done your research and have a clear idea of what you want, it's time to start negotiating with your (future) employer. However, it's important to remember that both sides will likely need to compromise in order to reach an agreement that is acceptable to both parties. Therefore, it's important to be prepared to give and take during the negotiation process. And again, remember, in most situations, severance is a gift. This is especially important for employees who have already left their employment and who are now wanting to negotiate to get better terms. In many scenarios, an employer could revoke the offer of severance at any time (if you have not already legally accepted). This is especially true for an employee who negotiates by making unrealistic demands or takes an aggressive negotiation approach without solid legal support.

What to do if you're not satisfied with the severance agreement.

If you're not satisfied with the severance agreement that your employer offers, you may consider seeking legal counsel from an experienced employment lawyer. A lawyer can help you understand the agreement, and your potential rights, and negotiate for a better severance package. A lawyer may also be able to weigh in on market norms and standard severance practices in your industry.

In conclusion, if you're facing layoffs or have been let go from your job, you may be asked to sign a severance agreement. These agreements can be complex and it's important that you understand what you're agreeing to before signing anything.

The best time to negotiate a severance agreement is before you're actually let go from your job. This gives you more leverage and puts you in a better position to get the terms that you want. If you're not satisfied with the severance agreement or have questions about negotiating your severance agreement, consult with an experienced employment lawyer.

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