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How to Handle Severance Negotiations

While there are times when you can see a firing or layoff coming, in many cases, when people get fired or laid off, it comes as a shock. However, whether it comes as a shock or they were prepared, people who are fired or laid off usually have a lot of questions and no answers, including:

  • Why is this happening?
  • How am I going to support myself or my family?
  • Do I still have health insurance?
  • What about my 401K?
  • How long will it take before I get another job?
  • Do I have enough saved up to survive until I get a new job?

Those are just a few of the many questions a person generally has after a firing or layoff. Answers to those questions and more can often be reached in severance negotiations or found in a severance agreement (also known as a severance package or arrangement).

What Is a Severance Agreement?

There’s a saying that, “Contracts aren’t for when things go right, but for when things go wrong.” That saying is never truer than when discussing severance agreements. Severance packages are agreements between employees and employers that cover each side’s responsibilities and rights if or when the employee is laid off or fired. Severance agreements are generally negotiated post-employment, but occasionally severance arrangements are made prior to an employee being hired. In most cases, severance packages include agreements about:

  • Salary – This is usually a lump sum based on your salary when you worked there and how many years you were employed with the company. Generally, you will get one or two weeks pay for every year you worked for your ex-employer.
  • Benefits – In some cases, employees can remain on their company’s health plan for up to 18 months after they’re let go. However, this is not always the case. Sometimes a company’s health carrier won’t allow a fired or laid off employee to remain on the plan or will require the employee to pay the whole premium without any contribution from their ex-employer to remain covered. In such situations, Consolidated Omnibus Budget Reconciliation Act (COBRA) benefits may apply. If terminated or laid off employees can get COBRA health coverage, they may have to pay the entire premium. However, there’s also a chance that the ex-employee’s former employer may pay the whole COBRA premium or part of the premium for a time.
  • Unemployment – This involves an employer agreeing not to contest a former employee’s unemployment benefits application.
  • Employment References – Former employers and their ex-employees sometimes agree to terms regarding what information can be shared by either party with the employee’s future employer(s) or potential future employer(s).

Tips for Negotiating a Severance Agreement

In some situations, severance agreements are signed during the hiring process. In other circumstances, severance negotiations take place after a person has been laid off or fired. In either instance, the basic strategies for properly negotiating severance remain relatively the same:

  • Figure Out What You Want – Determine what’s most important to you. It could be making sure you have enough money to survive until you find your next job or full health coverage for a set time or vested stock options. You may even be interested in staying on the company’s payroll as a consultant or contractor while you look for a new job instead of collecting severance pay. Whatever it is, make it your priority and secure it first before pursing anything else.
  • Money, Money, Money – It’s a negotiation. You may be able to ask for more money. While how much severance you’re paid may ultimately depend on how long you’ve been with the company, what your salary was, and why they’re letting you go, in general, it doesn’t hurt to ask. Also, you may be able to negotiate how your severance is paid to you. Some people prefer to have it paid in installments. Others just want it in a lump sum.
  • Do Your Research – You want to negotiate from a position of strength. So, find out as much as you can before you begin negotiating. Know your employment record inside and out. Be prepared to emphasize the good parts of your employment record and defend the bad parts of your record during negotiations. Read the employee handbook to make sure that your employer is following its policies regarding the firing or layoff and severance negotiations. Study your employment contract. Does it include information regarding severance? If so, make sure those terms are being met.

Dangers of Getting a Severance Agreement Wrong

Severance agreements are very important. However, people sometimes don’t realize how important a severance agreement is until it’s too late. The terms of a severance agreement can provide the foundation for a person’s post-firing or post-layoff life moving forward. So, if a severance agreement isn’t properly negotiated, it can set a person’s life, and possibly their family’s lives, back for years. Examples of how a poorly negotiated severance agreement can hurt people and their families include:

  • Lose Retirement Benefits – In some cases, if an employee has a retirement account with matching employer contributions, when the employee is fired or laid off, their ex-employer may try to prevent the former employee from keeping any contributions the company made to their retirement fund.
  • High-Cost Health Insurance – Depending on what’s included in an ex-employee’s employment contract and/or the laws in their state, the ex-employee’s former employer may have to pay for all or part of their health coverage if they let them go. This may mean keeping the former employee on the company plan or paying for their COBRA coverage. However, some employers may try to slip language in a severance agreement that allows them to get out of paying for a laid off or terminated employee’s health coverage.
  • Loss of Stock Options – In some situations, an employer times it so that an employee is fired or laid off before the employee is vested in their stock options. If the employer is allowed to get away with that, it can cost a terminated or laid off employee thousands or even millions in earnings.
  • Lose Employment Lawsuit Rights – If an employer has fired an employee for illegal or suspect reasons, they may try to include language in the severance contract that prevents their former employee from filing a lawsuit against them. An employment lawsuit has the potential to help a fired employee hold their former employer accountable for illegal behavior, such as discrimination, retaliation, or harassment.

Schedule a Free Consultation with Our Experienced Employment Attorneys

At Eldridge and Cravens, PC, our employment lawyers have over five decades of combined legal experience helping clients overcome a wide range of employment law issues, including unpaid wages, non-compete agreements, sexual harassment, discrimination (religion, disability, gender, race, pregnancy, and age), and severance negotiation. You don’t have to go through this alone. As our client reviews prove, our legal team has the experience, knowledge, and skills necessary to help you get everything you need to successfully move on with your life following a job loss.

Ready to talk? We offer complimentary case evaluations. For more information, give us a call at (865) 544-2010 or reach out to us using our online contact form today.