Negotiating Severance Agreements: Never Settle for Less Than You Deserve

No matter how generous a severance package seems, employees should never accept it without extremely careful consideration.

After all, severance agreements are primarily designed to let the employer off the hook from future lawsuits—and that is not always in the best interest of the employee.

Why Do Employers Offer Severance Agreements?

Severance agreements are voluntary contracts that offer special compensation and/or benefits to an employee who has been fired or laid off.

Employers offer severance agreements to protect themselves from lawsuits; they may do so as a general preventative measure, or in response to specific concerns that the employee being terminated could have grounds to sue.

Taking a reasonable amount of time to consider the terms of a severance agreement is your right.

Many severance agreements include “release of claims” provisions, which prevent the employee from pursuing litigation after leaving the company.

Severance packages are thus designed as a sort of quid-pro-quo: relinquish your right to sue or disparage the company, and receive more compensation than you would have under the standard termination proceedings.

If a company is offering you a severance agreement, it is crucial to consider their intent, your rights, and whether what you are offered in return for your compliance or silence is truly a fair trade.

What’s Included in a Typical Severance Agreement?

Typical severance agreements can include the following provisions and requirements:

Monetary compensation and extension of benefits: Employers can offer a set amount of money or an extension of your previous salary for a certain period of time, so that you have the financial means to comfortably transition to your next professional opportunity.

Many employers also offer an extension of medical or pension benefits, which expires on a set date.

Non-compete clause: In exchange for the compensation offered in the agreement, employees are commonly unable to work for a direct competitor or to start a similar company within a certain period of time.

If no time limit is mentioned, it’s worth negotiating—if you have spent years becoming an expert in a highly specialized field, for example, a broad and indefinite non-compete clause could restrict your professional opportunities.

Confidentiality agreement: If your employer has committed any type of professional violation or other wrongdoing, you need to know whether the severance agreement prohibits you from reporting it.

On the surface, confidentiality agreements protect employers from having their proprietary information shared with competitors, but they can also serve as a means of dissuading current and former employees from blowing the whistle on certain types of misconduct.

Make sure to seek legal advice about what kinds of information the confidentiality agreement covers (including non-disparagement clauses), so that you understand your legal rights going forward.

Release of claims: People who are part of a minority group or legally protected demographic should take particular note of release of claims provisions. Workplace discrimination is not always overt, but employees can be abruptly terminated from “at-will” positions without any indication of sub-par job performance or professional misconduct.

In these circumstances, any such employee who signs a severance agreement with a release of claims provision may be giving up their right to pursue a discrimination lawsuit.

Consider carefully, therefore, whether the compensation you are being offered is worth giving up your right to speak up about any wrongdoing that your employer may have inflicted upon you.

Points of Negotiation: Your Rights as an Employee

Being terminated from a job can be an incredibly stressful experience. Unfortunately, some employers take advantage of employees’ distress and pressure them to accept severance packages quickly.

Regardless of whether you seek attorney counsel, it’s not advisable to sign a severance agreement immediately, or even overnight. Giving you only 24 hours to sign is an unfair practice.

You are entitled to review the agreement over a reasonable period of time (at least a couple of weeks, in most cases), and you are entitled to have a lawyer review the contract.

Bear in mind, also, that it is your right to negotiate. Many professionals have found themselves in the emotional position of being terminated, only to have a seemingly sympathetic HR representative hand over the severance agreement, and then ask the employee to read it over and accept it on the spot.

Business Trial Group attorney Clay Townsend urges employees to know their rights during the negotiation process, and to have an understanding of their original employment agreement:

“Do not waive any claims or defenses related to the underlying employment agreement. If the proposed severance payment is in the employment agreement, you are entitled to the severance pay without more consideration or giving up any additional rights or remedies. For example, if they want to add a non-compete, they should pay more.”

It is to the advantage of most employers to convince you that what you’re offered is the only available offer. It is rare for employers to mention, therefore, that signing the agreement is your choice, and that you have the right to negotiate the terms of it.

Give yourself time to consider whether the benefits of the severance package outweigh the drawbacks—because there are always drawbacks.

The Cost of Getting the Compensation You Deserve

The financial burden of hourly attorney fees can prevent employees from seeking professional help with the negotiation process. This enables employers to get away with an unfair bargain.

By choosing a contingency-fee law firm to help you navigate this difficult transition, you avoid the burdensome costs of litigation.

Should you find yourself in a legal dispute regarding your severance package, make sure to seek counsel from an experienced litigator so that you are fully prepared to navigate a potential lawsuit.

Negotiating a severance package is a difficult and important process, and you owe it to yourself to get it right. With patience, an understanding of your rights, and qualified legal representation, you have the opportunity to make a smoother transition into the next phase of your career.

Learn more about your options as an employee here.