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April 29, 2020

Don’t Forget to Negotiate Your Severance

Don’t Forget to Negotiate Your Severance

The COVID-19 emergency and resulting shutdown are resulting in job losses in Michigan and nationwide. No industry is exempt. Retail, travel, real estate, and even healthcare are just a few of the sectors in which workers are taking a hit.

One consolation is that some employers are offering severance packages. This means that employees are being offered financial compensation and in some cases benefits upon being laid off. If you’ve been offered a severance, you need to understand a few key concepts right away:

  1. Your employer is offering you a severance because it wants something in return.
  2. You are not required to accept the severance in its offered form.
  3. You can—and in many cases should—negotiate your severance package.

A successful severance negotiation can maximize your payout and limit potentially burdensome restrictions that your employer may wish to impose on you as you leave your job. 

Terms of a Separation Agreement 

If your employer offers you a severance package, this is probably not out of the goodness of its heart. Your employer expects something in return. You have a limited amount of time to review and respond to a severance agreement offer. Use that time to get clarity on any requirements and to fully understand what you are agreeing to. It may make sense for you to consult an attorney.

Here are some items you may run across in a separation agreement:

Your Employer May Want a Release of Liability

A severance package typically includes a release of liability. Essentially, you are waiving your right to sue the company in the future.

Why would an employer want you to sign a release? In some cases, the employer may be aware of potential legal liability. Perhaps you were the subject of discrimination or harassment, and the company wants to prevent you from pursuing your claims. In other cases, the employer may simply want to insure against a future lawsuit based on some unknown or undisclosed legal claim. 

Either way, you are giving up something potentially very significant when you agree to release liability. You should weigh this very carefully against whatever compensation the company may be offering you in return. 

In particular, you will want to understand exactly what you are releasing the employer from. The terms of the release may be broad or narrow — i.e., all liability or only some. Moreover, you should consider how the release might make you vulnerable. For example, if your employer defames you or releases false information about you in a reference, would you have any legal standing to sue them? Finally, remember that signing a release could preclude you from joining any future lawsuits brought against the company by others.

This does not mean you should not sign the release. In some cases, it may make sense to do so. But an employee should not sign the release unless he or she understands what is being released and is satisfied with what the employer is offering in return.

Your Employer May Want to Limit Your Career Options

Severance agreements sometimes also include various career-limiting provisions. Employers include these to improve their own competitive position — but don’t forget that these may come at a cost to your career options. Examples include:

  • Non-compete clause, in which you will agree not to work for a competing company in a certain territory for a specified length of time.
  • Non-solicitation clause, in which you agree to not solicit the employer’s clients, customers, or employees for business after leaving.
  • Non-disparagement clause, in which you agree not to make negative statements about your former employer. These can extend to social media postings, talking to your neighbors, or any other statements.

Again, you will want to weigh the agreement carefully before signing it. While accepting severance pay may be appealing — especially in these challenging times — ask yourself whether you can live with the restrictions. It is vital for you to understand is how severely the restrictions impact your ability to get a new job and what limitations they impose on your career path.

Points to Keep in Mind During Severance Negotiations

A severance package is not a parting gift. It is an agreement that should — if negotiated properly — benefit both parties. Arm yourself with an understanding of what you are giving up and what you are getting in return. Ask yourself:

  • Do I fully understand what I am signing?
  • Do I have the option of revoking my acceptance?
  • What am I giving up?
  • What am I gaining?
  • Do I have all the information I need?
  • Do I understand the legal impact of what I am signing?

Remember, a separation agreement is just that — an agreement, a contract. It will be legal enforceable against you. While you should be mindful of any deadlines, resist the temptation to rush. And do not be afraid to demand your employer’s attention to discuss and negotiate any provisions that concern you.

Your payout will depend on a variety of factors including your tenure with the company, the company’s financial situation, and the strength of your bargaining position. As you negotiate, keep in mind that employers that have downsized due to COVID-19 might have limited options to increase severance pay. But that does not mean you should not ask. Even when more money is not on the table, you might be able to negotiate an increase in benefits or narrow the scope of any non-compete, non-solicit, or non-disparagement provisions.

Hire a Lawyer to Negotiate Your Severance

In the end, it’s your choice whether to accept the severance package your employer offers. You want to leave your job well, but you also want to protect yourself. As you consider your options, don’t go it alone. A knowledgeable attorney can help you understand the implications of the agreement terms. Equally important, an attorney skilled in negotiation may help you get a better deal.

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    About the Author

    Maxwell Goss represents plaintiffs and defendants in all stages of federal and state court litigation and provides strategic advice on intellectual property and business law matters.