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How to Negotiate A Severance Package

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Unemployed Storm TrooperA friend of mine was recently let go from her job of many years (she recently wrote about it in a two-part series, part one and part two). It’s been difficult watching the news and hearing about the millions of jobs lost in the last year but until one of your friends is fired, it really doesn’t sink in how weak our economy is. It’s one thing to see your 401(k) lose value, an account I can’t touch for forty years, it’s another to see one of your friends lose their job.

The first thing that came to my mind was whether or not she could negotiate a better severance package. She explained that because her employer was a non-profit, she had no legal recourse. I was surprised but upon further research, I learned that there are no laws specifically covering severance. There are laws that cover unfair termination, such as the Fair Labor Standards Act and similar state laws, and severance is mostly seen as a way to placate employees so they don’t consider filing a lawsuit. However, despite this, you can still negotiate a severance package.

The Worker Adjustment and Retraining Notification Act (WARN)

There was one law that may have been helpful to know and that’s The Worker Adjustment and Retraining Notification Act (WARN) that states most employers with 100+ employees must provide notification 60 calendar days in advance of plant closings and mass layoffs. She wouldn’t have qualified but it’s an important law to know. “Mass layoffs” isn’t ambiguous either, it’s “reduction in force which— (A) is not the result of a plant closing; and (B) results in an employment loss at the single site of employment during any 30-day period for— (i) (I) at least 33 percent of the employees (excluding any part-time employees); and (II) at least 50 employees (excluding any part-time employees); or (ii) at least 500 employees (excluding any part-time employees);” Under WARN, employees must have 60 days of notification, with pay, of layoffs so they have time to prepare. After the 60 days, then what severance you can negotiate applies (the 60 day pay period is not in lieu of severence).

How to Negotiate a Severance Package

While there are no laws that govern severance, you still have some leverage because employers want to avoid headaches like litigation. However, it mostly comes down to remaining calm, being cordial, and convincing the person you’re negotiating with that they should be reasonable when it comes to your package. If you’re an executive, the rules of the game are a bit different and outside the scope of this article.

First, severance pay doesn’t refer to only money payouts. Benefits and perks are on the table as well, which is a good thing because medical benefits are a big deal these days. You typically have 18 months of COBRA medical insurance coverage, which merely means you’re allowed to stay on your employer’s medical plan but must pay the whole premium yourself (normally the employer foots the bill on part of the insurance). One of the things you can consider negotiating is whether or not you can stay on the medical plan while you look for a new job. Another option is to ask if you can take your vacation in lieu of payment, which would extend your medical coverage. If they won’t let you, then you’ll probably want to be paid out your vacation, though it’s really a non-concession because most companies will pay out vacation.

You can negotiate the vesting on your various packages, whether it’s the basics like a pension and 401(k) to any stock options you may have been awarded. If you are employed “at will,” which are most people, the employer can terminate you whenever they like, including the day before your retirement fund’s vest or before your stock options can be exercised; try to negotiate to get your packages vested. With regard to stock options specifically, you often have 90 days after your last day of employment to exercise them, you can try to get this extended.

“At Will” employment means you can leave at any time and your employer can terminate you at anytime, but they must have a legal reason and the termination has to be performed legally. They can’t fire you for no reason and you can still negotiate your severance.

Avoid non-competes and waivers that prevent you from suing later on. Non-competes are tricky because you reduce the number of companies you could go work for, which is the last thing you want to do when you lose a job. If you waive the right to sue the company, then you might discover later that your termination was actually the result of discrimination but that you can’t do anything about it because you waived your right to sue. Think of the huge Wal-Mart age and gender discrimination suit

Get an employment attorney to help you review documents and assist in the process. The documents the company will be sending you will be in legalese and you won’t understand most of it. You will probably understand the major points but just like the fine print on a credit card agreement, there’s stuff in there that you won’t expect because you don’t get fired every day. It’s sometimes useful to get the advice of an employment attorney to help you review documents and give you advice on what you should do. This is slightly different than the last suggestion I’ll make, which is that you get legal representation.

Finally, you can always get the representation of an employment attorney, but this should be used as a last resort. If you talk to a lawyer, they’ll tell you that you always need their help or you’ll undervalue yourself or give up a concession you shouldn’t have surrendered. That’s all probably very true, but anytime you bring in lawyers, you take things to a totally different level. Some HR departments, upon hearing legal counsel is involved, may be required to turn it over to their legal department. Representation by legal counsel should be considered the nuclear option.

Good luck!

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14 Responses to “How to Negotiate A Severance Package”

  1. Hopefully I never had to be in this type of situation. However, I agree that you need to look at all the benefits and not just your salary when you are at the negotiating table (assuming that you have one). If you are let go because of a poor work ethic or lackluster performance, then you may be lucky to get anything at all…

  2. JP Hindin says:

    Hey;

    I was under the impression that a non-compete clause was, by and large, an unenforceable entity. The general gist is that a company cannot stop you from making a living, and if you are in a specialised area then that is even more applicable. Effectively you would be barred from working in your own industry, and earning a potentially comparable wage to your last employment, instead you’d be stuck with working at a Staples for the next six months because of said clause. And that is “not fair”, if you’ll forgive the schoolyard term.

    As much as I try to avoid using Wikipedia as a source-of-all-answers, the following somewhat backs ups what I’d heard:
    http://en.wikipedia.org/wiki/Non-compete_clause

    For what it’s worth;

    – JP

  3. Dennis S says:

    My understanding is the notice period is governed at the state level and here in New York the notice period has been increased to 90 days!

    DS

  4. thomas says:

    If you get axed and have a noncompete, I wouldn’t worry about it unless you are some executive. I seriously doubt a company that is laying people off will want to pursue legal action.

    bookmarking for future reference.

  5. Christine says:

    It was only after I hired an employment lawyer that I was able to receive the severance I was offered. My non-profit withdrew the package on the day the paperwork was to be signed. I had negotiated with my attorney an up-front reasonable rate and an agreement to inform me when my bill hit $1,000. I think it was the best thing I did. It definitely took things up a notch, gave the company a scare and allowed me to receive the package that the company never would have paid. The lawyer was excellent and asked an important question – did I want him to represent me or guide me. Removing myself from the peeing contest that my boss insisted on conducting made my life a bit easier. Even still, it took two months, but I shouldn’t complain – I received it! Vengeance is sweet.

    • wendy says:

      Reading your reply has given me the strength I need to follow in your footsteps. I just hope My case turns out as well as yours. Thanks, Wendy

  6. elminio soto says:

    hey can anyone answer this question.I just received a severance package it says that i will receive it for 12 weeks in equal installments based on my annual salary.does this mean i will get 12 regular checks or i will get my salary split in to 12 payments.

    • Jim says:

      It’s unclear based on your explanation what you should get, I would ask your employer.

      • elminio soto says:

        this is what it says word for word may be this will help.you will severance for 12 weeks the severance period in equal installments based on annual rate of xxxxxx,minus legally required federal and state payroll deductions.

  7. CJ says:

    Job was eliminated due to an imminent domain buyout from the Federal Government for a courthouse expansion in my city, I was there for 16 years and despite many verbal promises from my employer, in the end they disappeared and would no longer speak to the managers of their very successful business. They had promised us a significant severance from the monies from the Feds for the buyout, but alas, they turned out to be liars and cheats! What can be done in this situation? Anyone been in a similar one? Please help!!!

  8. Karen says:

    I just received a severance pkg and my question is. I was told my severance would be equal to 3 months salary when I was presented with my pkg they figured the salary on 12 weeks which by calculations is less then what I would receive if they actually paid me out for 3 months – when I think of 3 months pay I take my annual divided by 3 and get a figure but when you actually take 12 weeks pay that is less. I am to receive a lump sum not salary continuation which I would get the 12 weeks vs. 3 months.
    THank you.
    Karen

    • Betty says:

      Karen: I had the same thing happen to me. I was offered 6 months severance package but they wrote it up like twenty four weeks which is not 6 months! So I advised the hr guy that it is 52 weeks in a year divide that by 2 and you get twenty six weeks not twenty four. You must insist on the logic or else you will get played. They hope you don’t catch them on this. Imagine how many people don’t look this over and find out that they do not have the accurate data. I also made sure that I put my base salary $ amount in the acutal general release so there was no dispute on that either.
      Best of luck.
      Betty

  9. Robert says:

    not mentioned above; taking as weekly/monthly pieces far better than lump sum, as IRS/SS table will hit you up more on later payout

  10. joanne buse says:

    Iam in a situation where i was on longterm disability and my insurance cuts me off then,”all of a sudden i didn`t meet the definition of disability” so i sued was awarded
    $170000.00 now i am still disabled my employer refuses to terminate me,if they do they have to pay severance if i resign they don`t have to pay severance i have been off work for 4 years trying to get my rrsp`s released from this insurance company to transfer to another
    registered product(so i don`t get taxed)and my insurance company won`t release this until my employer terminates me so frustrating especiallly not being well!


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