Top Tips For Negotiating Severance Pay

The loss of your job is one of life’s most stressful events.  The financial and emotional toll have ripple effects not only upon your future, but often upon the lives of family members who depend upon you.  When people ask me, “Is it worth trying to negotiate for more?”  I inevitably say, “If you don’t try, you know things will not get better.  But if you try in a strategic way, there is hope that we can make this deal better for you and your family.”

Is there risk to negotiating?  Yes.  Severance offers are contracts, so the basics of contract law offer and acceptance apply.  Mutual consideration is an essential element of the deal - you are being offered something – typically the severance pay.  And in exchange the employer is asking things of you – the terms of the severance contract document.  If you don’t accept those terms “as is” and go back to negotiate, you are making a “counteroffer,” which has the legal effect of killing the original severance offer on the table.  However, in working thousands of severance negotiation cases over the years, I have not had the company withdraw an offer merely because we went back to negotiate.  That is because HOW you negotiate is critical.

Anyone whose employment has been terminated knows that severance comes with standard paperwork – what the company wants from you in exchange for paying you the severance pay and benefits.  The most important thing the employer wants is for you to promise not to sue them and to walk away quietly without telling others what you received. This is a waiver of important legal rights – something of immense value to the company, and where you have your leverage to negotiate.

Here are some of the key items to address in severance negotiations:

The payment terms. Consideration is the legal word for payment.   How much money are you being offered – is this industry and company standard?  Is it reasonable in light of your age, years of service, the quality of your work, and how long it may take you to replicate a new comparable opportunity? Does the pay stop if you get a new job?  Are they offering payment over time, or in a lump sum?  You can negotiate both the amount of the payment, and the terms of payment.  Key ways to do this are WIIFMs (what you did to create measurable value for the company) as well as ways you were wronged in violation of discrimination laws or company policy.  This is where working with an experienced employment lawyer becomes critical to framing your negotiated ask in a way that has the best potential to deliver value back to you.

Release of claims.  This is by far the most valuable provision wanted by the employer.  By signing a release, and accepting the employer’s separation payment, you are agreeing not to sue the company for anything it may have done to you up through the date you signed the agreement – and if you breach this promise in the future, most agreements contain substantial financial penalty provisions.  You need to know exactly what you are signing and giving away.

Confidentiality and Nondisparagement.  These provisions are also extremely valuable to the employer.  The employer wants you to promise not to help other employees sue them, and not to speak about what happened to you at work or as part of your separation. Non-disparagement means that you agree not to say anything negative about the company to anyone.  This is usually one-sided, with no reciprocal non-disparagement about you.  You can’t complain to your friends or future employers about what you experienced, or you may have to return the money you received. Make sure the agreement allows you to speak to your family, attorneys, financial and tax advisors.  Try to get reciprocal non-disparagement at least by a list of employees about whom you may have legitimate “gossip” concerns.  Perhaps you want to negotiate for a positive reference, or even that these two provisions be time-limited.  

 Cooperation clause. Companies want you to promise that you will cooperate with them in future litigation involving your areas of responsibility.  Although this type of a provision is in almost every agreement I see, I do not have employees coming back to me saying the company actually invoked it in the future – usually because if you left involuntarily, companies fear you may not be the most favorable witness.  What you can negotiate is for the company to pay all costs of your cooperation, including any lost wages, and to provide you with legal counsel at its expense.

Arbitration.  Many separation agreements try to incorporate a mandatory arbitration provision, but arbitration is very expensive.  If you must agree to it, make sure the company agrees to pay all costs of the arbitrator, as those fees alone can be $12,000/day.

Restrictive Covenants.  If you have any restrictive covenants (non-solicitation or non-compete provisions), have your employment attorney review those and see if the facts of your separation merit negotiating for a reduction in their provisions to enable you to move forward to secure new employment.

Bottom line: Severance packages are negotiable, and there are many other items for which you can negotiate other than these key examples.  Each person has unique experiences and thus each person’s ask should be tailored to their particular circumstances for maximum positive effect.  Call us for a free consultation if you have questions about your situation.