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Understanding Severance Packages

Posted by Kathy Harrington-Sullivan | Dec 18, 2013 | 0 Comments

In the event of a merger, acquisition or layoff, your position at work could be in jeopardy. If the axe falls, your company may offer you a severance package to take the sting out of your termination, giving you a financial safety net as you pursue other employment. But more important to your company, it reduces the chance that you will share information about them or sue them for your dismissal.

There are no hard and fast rules when it comes to severance packages. In fact, a company is not required to offer a package unless they have a union contract that dictates it. However, about 60 percent of companies have them in place. While a package is a generous offer, that does not mean there's no room for negotiation, especially if you work in upper management or you are an executive in the organization.

Standard features of a severance package include:

  • Severance pay – Most severance packages offer two weeks' pay for every year you've worked, though this may be higher or lower, depending on the company. Severance pay may come in a lump sum or be paid over time like a salary. You should talk with an employment lawyer about your best option as your pay can affect your ability to collect unemployment.
  • Health benefits – By law, many companies are required to offer COBRA benefits, allowing you to purchase health insurance for 18 months at the rate your employer was paying. The cost may be substantially lower than what you can find on the open market.
  • Vacation pay – If you have accrued sick time and vacation time, you may be able to receive an additional payout upon your dismissal.
  • Stock options – In most cases, you have 90 days to exercise vested stock options after your dismissal. In some cases, you may be able to extend the time or negotiate a reversal of unvested stock options.
  • Unemployment benefits – Ensure that the employer will not challenge the request for unemployment benefits if you will be applying for them. When negotiating your severance, add a sentence to your contract stating your employer will not contest your unemployment benefits request. Consult an employment lawyer if you need more information on this issue.

It is critical to review your agreement closely to determine any terms and conditions to your package. For instance, your employer may prohibit you from working for a competitor. Or, you may find your employer is able to stop paying your compensation if you take another job.

In addition, you may be able to negotiate a better severance package if you have been terminated illegally, such as reasons associated with your age, race, religion, or gender, or if you were retaliated against for taking legally-protected leave or for blowing the whistle against your company. However, if you take the severance, you will be asked to waive your rights to file a claim against your employer. Thus, it is important to seek legal advice on the propriety of accepting a severance package in light of potential claims you may have against the employer.

Before signing any severance agreement, talk to an employment lawyer to address any concerns you have. After all of the hard work and dedication you devoted to your company, it is important that you have the financial cushion you need as you look for the next opportunity in your career.

About the Author

Kathy Harrington-Sullivan

Kathy Harrington Sullivan is a Partner at Barrett & Farahany who helps potential clients understand the law, clarify their rights, and determine which steps they can take to protect themselves and their jobs.


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