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What you should know before agreeing to a severance package

Posted by Kathy Harrington-Sullivan | Feb 28, 2022

After a layoff, anxious employees sometimes sign whatever severance agreement they're offered, failing to appreciate that they may have more leverage to negotiate than they'd expect. While companies are under no obligation to even offer severance, many do so, eager to demonstrate their goodwill, maintain a positive reputation and, yes, avoid employment lawsuits. For those same reasons, employers will often negotiate on package details, attempting to make the parting process a little less uncomfortable.

What is in a severance package?

A severance package is a collection of pay and benefits offered after a company lets an employee go. The severance is meant to help the employee transition to a new job, offering a financial cushion and sometimes other company resources in the interim.

Standard severance packages might include:

  • Severance pay: Most severance packages offer one-to-two weeks of pay for every year you've worked. Severance pay may come in a lump sum or be paid like a salary. Each method has its own tax implications.
  • 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.
  • Vacation pay: If you have accrued paid time off, 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.
  • Outplacement services: Companies will sometimes offer career counseling or recruiting services to increase your chances of landing a job quickly.

In return for pay and other benefits, employers typically ask outgoing employees to sign a release, barring them from future employment-related lawsuits. Non-compete and non-disclosure agreements are also common but are worth close scrutiny before agreeing to the terms.

How to negotiate a severance package

Before signing a severance agreement, it's important to ask what you'll need most as you move on to a new job. Take your time, consider your needs, and negotiate for the most advantageous terms. If you are over 40 years of age, then under the OWBPA (Older Workers Benefits Protections Act), you have 21 days to review a severance offer, and a further 7 days to change your mind after accepting it.

Start by reflecting on the terms of your dismissal. Were you the victim of discrimination based on your protected class? Were you retaliated against illegally? If you think you could have a possible lawsuit, speak to an employment attorney. After you've agreed to a severance package, you'll likely no longer be able to sue your employer for any claims that are waivable.

Also take time to consider your career goals and possible next moves. In this advantageous job market, you may feel confident that you'll quickly find a new job in your field and simply want a lump payment, an adjusted termination date and good references. Or you may determine you're ready to make a career change and know you'll need longer-term support.

With a typical severance package, it's possible to negotiate:

  • Your severance pay: you may be able to to push for closer to four weeks of pay for every year worked, or more if you're a manager or executive or have an underlying legal claim.
  • Your insurance coverage: If you know COBRA will be cost-prohibitive, you can ask your employer to bear all or part of the cost until you find a new job.
  • Your job perks: If your employment came with discounted gym memberships or air travel perks, you can ask for these to be included in your package.
  • Your departure announcement: You may wish to have a say in the communications surrounding your departure, especially if you're at the management level. Your employer may also allow your bio and contact information to stay on the company website as you search for a new job.
  • A reference clause: If you hope to include your employer as a future reference, you can determine now whether it will be possible to do so.

If the severance package has a non-compete clause that makes it challenging for you to work in the field, consider whether it's worth signing.  Better yet, have an attorney review your severance agreement before signing in any event to be sure as many of your interests as possible are protected.

While the idea of job security may be comforting, don't let it be the only thing you rely on. Mergers, acquisitions and downsizing happen all the time, and it's smart to stay ready. Understand a company's severance policy before you start. Keep track of your accomplishments and performance reviews. And, if you're eventually let go, don't be afraid to ask for a better package or speak to an employment lawyer if you think you've been fired unfairly.

At Barrett & Farahany, we are happy to answer any questions about your situation. Please contact us to speak to one of our attorneys.

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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When you reach out to us, you will receive a complimentary consultation with one of our skilled Atlanta employment attorneys. During our initial consultation with you, we can help you to better understand your rights and will work with you to determine what course of action is in your best interest. We take great pride in providing assistance based on years of experience negotiating and litigating employment matters to protect employee interests. If you find yourself in need of dedicated legal representation, we are prepared to advocate on your behalf – our goal is always to protect employee victims of harassment, discrimination, and retaliation.

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