An Employee’s Guide to Severance Packages

An Employee’s Guide to Severance Packages

Columbus Severance Agreement Lawyer John Marshall Explains Severance Packages

In these difficult economic times, many face the unfortunate reality of an early end to employment.  Whether expected or unexpected, the end of your relationship with an employer is often accompanied by the offer of a severance agreement or a severance package.  If you sign this document, you will be entitled to a certain amount of severance pay. You will also waive and give up most legal rights against your employer.  When you are giving up significant legal rights, you should only do with eyes wide open and with advice from a good employment lawyer.

Severance agreements can be long and full of legal jargon.  I’ve seen agreements as long as 15 single spaced pages containing language which was barely recognizable as English.  At their core, however, severance agreements are contracts in which release your legal rights against the employer in exchange for money.

Unfortunately, severance agreements are frequently offered when an employee is in a vulnerable position.  Whether we have planned for it or not, the sudden loss of a job—and the paycheck, can be tough and leave you feeling anxious and unsettled.  In addition to the loss of money, you are losing your daily routine and, especially in the case of long term employees, work friends.

The offer of a severance agreement takes advantage of this vulnerability.  Financially, it offers a short term fix for the loss of a paycheck.  Psychologically, it offers an employee still reeling from being terminated the ability to do something affirmative and obtain closure.

Severance agreements are almost always presented as a take-it-or-leave-it proposition.  They come as a hard paper document or a pdf file, which reinforces the concept of non-negotiability.  Everything is done to reinforce the idea that these documents are standard and that all employees accept the offer as a matter of course (“this is our standard agreement for an employee with 8 years of experience”).  A former employee won’t be asked for their edits or changes – instead they will typically be directed to sign the document and return it to Human Resources.

Most severance agreements offer an employee 21 days to consider and 7 days to revoke the signature.  This time to consider and revoke is not being extended as a favor to you.  Instead, this language is required by the federal Age Discrimination in Employment Act, 29 U.S. Code § 623.  Basically, if you are 40 or older and an employer wants a valid release of any claims you might have for Age Discrimination, this time to consider must be offered.

Nonetheless, employees will feel pressure to sign the release as soon as possible.  One source of that pressure is the fact that the earlier you sign, the earlier you can start receiving your severance payments.  Some unscrupulous employers will tell employees that regardless of what the agreement says, they need to sign the release immediately or the offer will be withdrawn.  Employees may also be subjected to frequent follow ups wondering if they have signed the release yet.

If you do not have a strong legal claim to bring, severance packages can be a good thing.  Signing severance paperwork without first consulting an attorney, however, can be a serious mistake.  Just as no employee is standard, no severance agreement is standard.  These agreements are frequently negotiable, both in the amount of money offered and in their language.  As I will discuss in more detail in a future post, there can be all kinds of concerning language which companies at times place into the document, including non-compete agreements.  Severance agreements are binding contracts which control your actions in the future, and should be understood thoroughly before they are signed.

Beyond just understanding the agreement, there is also the practical question of whether you will be better off if you sign the severance package, and if you have grounds to request a larger payment.  An attorney retained to review your severance agreement will consider the following:

  • What you are presently entitled to without signing the severance? Are you presently entitled to unpaid wages, commissions, vacation and sick time, deferred compensation, bonuses or stock options?
  • Will the severance package take away anything that you already have?  For example, releases frequently state that you agree you have been paid all outstanding compensation.  For example, you wouldn’t want to give up an earned $10,000.00 commission or valuable stock options in exchange for a few weeks of pay.
  • Do I have any legal claims against my former employer, and if so can we estimate their value? Placing even an approximate value on legal claims is a difficult business, but your employer has already placed a dollar value on your claims – the severance benefit. You should make your own evaluation with help from a good employment lawyer.
  • Does the severance package contain any non-monetary items that should concern you? Again, several weeks of pay may not be worth it if it comes with a non-compete prohibiting you from working in your field for a year.
  • What does the severance package say your employer will tell others about the reason you don’t work there any longer?
  • Are there other non-monetary terms that might help me in the future, like a positive reference or outplacement services?

With this analysis complete, you can make an informed decision about your severance package based on your personal goals and risk tolerance.  You may well have a good argument that the severance amount should be increased or that certain things or problematic terms should be removed from the agreement.  If this is the case, your attorney will be able to advise you of the steps you can take to potentially achieve these goals.  We have had great success negotiating modest or sometimes significant enhancements to severance packages. Don’t negotiate on your own before you at least talk to a good employment lawyer.

John Marshall is a partner with the law firm of Marshall and Forman LLC in Columbus, Ohio.  He represents employees in a wide range of employment rights issues.