Consider These 5 Things When Negotiating a Severance Agreement
A severance agreement is a contract that governs the terms under which an employee or an executive’s employment ends. The contract is not one-sided. The offer is typically made to relieve your employer of specific legal liabilities and prevent any future litigation.
Although it is important to have a severance agreement in place to protect your financial future in the event of job loss, it may not be in your best interests to immediately put pen to paper. You are entitled to be given some time to consider the offer and review the provisions. Some of the terms may also be negotiable, allowing you to seek more favorable result for your future.
This blog discusses five critical factors to consider when negotiating a severance agreement. Although we cover a lot, we recognize that you may have some questions about your leverage in negotiations. At Benton Employment Law, we help executives and other employees negotiate severance agreements. We encourage you to reach out to our Oakland severance lawyer for legal counsel.
Severance Pay or Wages
Severance pay or wages is compensation an employer provides an employee when the individual’s employment ends. Various circumstances can trigger a severance payout, such as a termination, ending an employment contract, or company downsizing.
Severance pay allows the former employee to cover financial obligations while out of a job and looking for new employment, relieving some stress during the transition period.
Employers are not legally required to offer severance pay, and there is no standard amount of wages that must be paid out. Severance pay for executives and management-level employees is often larger than the payments offered to non-managerial employees. Typically, compensation is paid in a lump sum but under certain circumstances might be paid over a specified time period.
The Consolidated Omnibus Budget Reconciliation Act (COBRA) of 1985 (enacted July 1, 1986), requires that employers with 20 or more employees, and maintain group plans (including health, dental, vision, and medical reimbursement accounts), offer continuation of benefit coverage to covered employees, spouses or domestic partners (State of California Legislation, not federal law), and dependent children who lose group coverage due to a qualifying event such as voluntary or involuntary job loss, reduction in the hours worked, or transition between jobs. Plan coverage can be continued for a maximum of 18 or 36 months depending on the qualifying event. Premiums are calculated at 102% of the total group rate and are paid by the enrollee directly to the plan on a monthly basis. Generally, the employee must pay the insurance premium.
During severance agreement negotiations, you may want to ask your employer whether they will pay the premium, in part or whole. You also have the option of converting to a cheaper plan on your own.
Stocks Options or Restricted Stock Units
Some companies offer employees stock options or restricted stock units. The stock options must be vested and often may only be exercised when a triggering event occurs.
If your stock options or restricted stock units have not fully vested or other limitations apply, you’ll want to negotiate with your employer when you can earn them. For instance, you may request accelerated vesting or cashless exercise of the options.
Certain adverse incidents occurring on the job can cause employees or executives emotional distress. If it resulted from illegal conduct, such as discrimination, harassment, or retaliation the employee may have a right to sue their former employer for damages.
Usually, a severance agreement absolves an employer of these legal liabilities. You may be prohibited from taking legal action against your employer if you suffered emotional distress but signed a severance agreement. When appropriate, you may consider negotiating emotional distress as part of your severance package.
Key Provisions Negotiated for Your Protection
A severance agreement may contain confidentiality and non-disparagement provisions, which often are more beneficial to the company. The confidentiality clause typically asks that an employee keep certain pieces of information, such as the details of a severance package, private. The non-disparagement agreement states that an employee cannot say anything negative about the employer.
Avenues may be explored to have confidentiality and non-disparagement provisions work in your favor. You can seek mutual agreements where your employer cannot disclose certain pieces of information nor make any unfavorable comments about you.
Consult with an Attorney Before Signing Your Severance Agreement
Knowing what’s negotiable when creating a severance agreement can help protect your best interests. But even with this understanding, it can be hard to know whether the terms are fair and reasonable. Reviewing the proposed contract with an employment law attorney can help you make more confident decisions. Your attorney can also assess your situation, anticipate future impacts of the agreement, and negotiate the terms.
If you’re an employee or executive needing assistance with a severance contract, speak with our Oakland attorney by calling Benton Employment Law at (510) 650-0250 or submitting an online contact formtoday.
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