How to Negotiate a Better Severance Package was originally published on Firsthand.
If you think you might be facing a layoff soon, you can take comfort in knowing that there are several things you can do to strengthen your ability to negotiate a solid severance offer. Below is everything you need to know to negotiate a better severance package, along with common mistakes to avoid.
Think beyond money
The first thing to know is that a severance agreement is a contract. Don’t sign anything until you take the necessary time to consider the offer since signing an agreement means giving up certain rights. Second, do a bit of soul searching to pinpoint what matters most as you manage a potential life change. Third, make sure to consider all the below services as you negotiate an offer that’s right for you.
Reemployment services
If your goal is to find another position, consider asking the company to pay for assistance that may include a career coach, membership fees for a networking group, or a subscription to a job listing site that provides qualified job leads.
Vesting options
If your 401(k), 403(b), or other pension plan isn’t fully vested, ask your employer to pay the difference in balances or request to delay termination until after the account vests. If you participated in an employee stock option plan and you’re close to vesting, ask your employer to accelerate the vesting period so there is an opportunity to exercise the options or even sell the options back to the company.
Exit message and references
Ask your employer to agree on a stated message that explains the reason behind your departure since it will likely come up in future interviews. Ask your employer to agree on who provides a reference when future employers reach out and what can be shared over the phone; this can be important if there was an ongoing disagreement with a supervisor.
Bonuses, PTO, and perks
If a performance bonus was on the near-term horizon, make sure it is included in the lump sum. Check rules in your state pertaining to vacation and sick days, as some require payout at termination while others do not. If you had perks that you don’t want to lose, like a gym membership, ask for that perk to be extended.
Insurance
If your company has more than 20 employees and a group health insurance plan, they’re required by law to offer continuation of coverage through COBRA, which lets you continue your health insurance benefits for a certain amount of time after your employment ends. If you’re no longer at work due to a disability, make sure you review the severance agreement closely as many contracts include broad language that eliminate future rights to disability benefits. If the general release contains language waiving Employee Retirement Income Security Act (ERISA) claims, you’ll want to negotiate inclusion of that language or consult a lawyer to get additional help in this area.
Don’t skip the clauses
Before you sign, read the contract very carefully or hire a legal expert who can help you through the legalese. One area you might be tempted to skip are the clauses within the contract. Read them carefully as they could impact your rights. Below are seven clauses to watch out for.
General release of claims
The release of claims includes the body of your severance offer and releases one or both parties from future liability. By signing the agreement, you waive your right to pursue legal claims against your employer for wrongful termination, defamation, harassment, discrimination, unpaid wages and the like.
Non-competition clause
This clause limits where you can work after you leave the employer, although in many states the limitations must be considered “reasonable” to be enforceable. The clause may prohibit you from working in a similar role or starting your own business within a geographical area for a certain amount of time. Check rules and court decisions in your state to determine enforceability.
Non-solicitation clause
This prohibits you from taking clients or employees with you from your current employer. In other words, you can’t bring over clients or use contacts from your current employer to help you in a new position. This clause may require additional thought as you might stand to gain more if you choose not to accept these terms.
Non-disparagement clause
If accepted, you may be limited regarding negative comments about your current employer or its products in any form of communication. On March 22, 2023, the National Labor Relations Board (NLRB)’s General Counsel issued guidance on a recent NLRB decision explaining that it’s permissible to restrict employee statements that are “maliciously untrue, such that they are made with knowledge of their falsity or with reckless disregard for their truth or falsity.” Reach out to a legal expert if this clause appears in your offer, as decisions about this by the NLRB are in a state of flux in 2023.
Confidentiality agreement
The GC Memo mentioned above also addressed confidentiality agreements; confidentiality clauses addressing proprietary or trade secret information are permissible (limited by time and business reasons); confidentiality of financial terms of the agreement is also permissible. Like the non-disparagement clause, reach out to a legal expert if this clause appears in your offer.
Payment schedule
A lump sum payment may be a quick way to get money, but it may bump you to the next tax bracket; weekly or monthly payments may prevent you from qualifying for unemployment benefits.
Special considerations for those over 40
Employers must adhere to the Age Discrimination in Employment Act (ADEA) if you’re over 40. The ADEA gives you 21 days to make your decision and seven days to change your mind after signing an offer.
A final note
If the thought of negotiating a severance agreement seems overwhelming, take a deep breath and enlist legal help to provide extra guidance if needed. Otherwise, do your best to stay level-headed and professional as you work with your employer to agree on an offer that works for both sides.
Merry A. Kogut is a licensed attorney based in Washington State who has been a legal expert on JustAnswer since 2008 specializing in employment law, consumer protection, and discrimination issues. She has also been an attorney since 1986, and brings nearly 50 years combined legal and professional writing experience. Earlier in her career, Merry served as a law clerk for the Washington State Court of Appeals, and as a discrimination specialist, investigator, and legislative liaison. She also helped establish the “Legal Writing Institute,” a national association of legal writing instructors and administrators. Merry earned her law degree from the Seattle University School of Law (formerly University of Puget Sound).
