Seven Considerations When You Negotiate Severance

By James Anderson AAA

You think something might be up when your boss emails you to meet in the conference room after lunch. You know something is going on when the head of Human Resources just happens to be sitting in: You’re on the way out.

The focal point for the bleak half an hour ahead is likely to be parked right under your nose in a folder: your separation agreement. It’s the legal document that will seal your fate and the terms of your departure, one that spells out what the company wants to give you (severance pay and outplacement services, perhaps) in return for what you’re giving up (claims now and in the future), as well as a deadline for your signature. Sometime during the next 30 minutes, the HR chief may also offer up a key recommendation: Consult a lawyer.

That’s good advice, especially since (1) what a company offers in severance can be made up of many parts – a lump-sum payment and outplacement, to name two items – and (2) since there’s no consensus on how much to pay or what to provide. Consider the findings of a 2011 study by the outplacement firm Lee Hecht Harrison. Two-thirds of the corporate respondents reported their company had a formal severance policy; at the same time, almost half the survey participants said the company had informal guidelines as well. That’s a lot of potential gray area.

Things get still cloudier from there. In the paragraphs below, you’ll see there’s quite a range as far as final payments go. Moreover, there is a lot of ground to cover in negotiations beyond your last paycheck. Here’s then what you should know, think about and act upon should you find yourself summoned to the conference room:

1. Get a handle on what both sides are seeking and are required to do. Your employer has made it clear you’re no longer wanted for whatever reason. Mind you, unless you're covered by a contract, most states classify you as an “at will” employee, meaning your boss can fire you without a set reason and not be on the hook for any severance pay. You may have even signed a document confirming that point when you were hired.That said, remember that the company wants closure and for good reason. Your separation agreement signature is worth money since it potentially limits the number of legal issues you, the fired or downsized employee, might take up. Less hassle now and in the future means fewer billable hours for the company’s legal counsel. You get the picture.

2. There’s a range of financial outcomes. If you’re a top executive, the terms of what you’ll pocket when you pack up are typically spelled out in your contract of employment. For everyone else, from upper-level management down the corporate ranks, things are very likely not so clear.

That’s where informal guidelines come into play. The rule of thumb that applies to severance packages – two weeks’ pay for every year of employment – turns out to be a rough average. In practice it ranges between one and four weeks depending on circumstances, says Jeffrey M. Landes, a lawyer in the labor and employment practice of the New York firm Epstein Becker Green.

3. How much you get depends on a number of factors. As far as severance goes, your tenure on the job is just one of several considerations. If you’re being fired because your boss feels you didn’t measure up, it’s likely to be on the lower end of the scale. If your company was bought out and forced to shed jobs, you may find your boss wants to be more generous.

How well did you perform and how well is it documented? The better your evaluations and the more popular you are, the more likely that an employer will carve out more severance pay.

What triggered your dismissal? If the circumstances behind your termination are out of your company’s hands – downsizing as the result of a merger or the axing of an obsolete division – terms are likely to be more generous, according to the Lee Hecht Harrison study.

Has your company been lax about tracking your performance? Your company is likely to weigh its legal vulnerability. If you were fired for under-performance, you may gain leverage if your evaluations are unclear or seem to point to good work.  

4. Review your work history closely. Miriam F. Clark, partner at the New York employment-law firm Ritz Clark & Ben-Asher, says one of the first things to examine with a lawyer are documents that chart your history at the company and how well you performed your job. The overall picture will help determine whether you have a discrimination case to pursue. If you have grounds for an action, there’s potentially a court award or settlement in your future. At the very least – if there’s a scent of something awry - you’ve got additional leverage in severance negotiations.

5. Know where your company has flexibility. It helps to determine what you can ask for during negotiations and what is off limits. Simply put some things your company can negotiate and others that are outside your boss’s control. First off, there’s the law to consider. The law in Ohio, for instance requires compensation for the accrued vacation. That’s because it is considered a deferred payment for a benefit you’ve earned, says Cleveland attorney Jon Hyman.

Similarly, your company will probably have little or no leeway when it comes to employee benefits.  Healthcare and insurance coverage are determined by insurance carriers, not your employer after all. Yes, you’re allowed to stay on the company health plan for up to 18 months under COBRA law, but you’ll likely pay a steep price for the privilege. Your disability coverage through the company, meanwhile, is likely to end when your employment does. One thing you can request is for the employer to boost your severance package to help foot the bill for COBRA coverage or the initial cost of disability insurance. Some employees may even be able to negotiate to delay the formal date of their separation from the company to accommodate benefits issues, such as reaching a pension deadline.

Consider a few other possibilities. It’s not uncommon for employees to ask for the sum of money employers might have earmarked for outplacement services says Clark.

Landes says another talking point is the timing of your severance payment in order to maximize what you get in state unemployment benefits. Delaying receipt of severance for one month may prevent receiving lower unemployment benefits, for example.

6. Tap into relationships – when it helps. Face it: Bosses and human resource directors are human, and relationships can matter during severance negotiations, too. In fact, says Clark, there are times when she recommends that employees themselves handle some of the face-to-face haggling over severance terms rather than bringing in an attorney – especially if they’ve got a close relationship with a boss or someone else on the other side of the table.

7. Remember the future. Hammering out the best terms in your separation agreement goes beyond money – what you agree to can affect your long-term career. Future job references are also something to take up before you sign off. Your separation-agreement negotiations can address what’s put in writing when prospective employers check into your work history. They can also spell out just who provides a reference and what information can be shared over the telephone as well, says Clark. That’s especially important if you’ve bounced around a few jobs or had an ongoing spat with a supervisor.    

There are also likely to be provisions that require you to keep mum about why you’re leaving and the terms you struck on the way out. If you find the limitations too stifling, you may push back and change them during talks, says Clark. For instance, you may want to carve out exceptions to covering speaking with your spouse and kids about what happened. Robin E. Shea, a partner in the firm Constangy, Brooks & Smith in Winston-Salem, says it’s even possible to script language that both parties find acceptable – and that protects you.

The Bottom Line

In the end, stay objective and focused. While combing through the finer points of a separation agreement can be painful exercise, they’re an essential step in getting back on track. A clear mind and sharp focus can help you close the past, secure the present and pave the way to a brighter future. Above all, remember you'll be in shock at that first meeting, even if it's not a complete surprise. Don't sign anything – and try to talk  to an attorney who specializes in employment law before you do.

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