Are Severance Packages Negotiable?

When there is a layoff, reduction in force, or termination of employment, employers will frequently offer employees severance pay. Generally, this will be memorialized in a severance agreement that requires the employee to, among other things, release any and all legal claims that the employee may have against the employer in exchange for the severance pay. In many instances, severance agreements include non-disparagement, confidentiality, non-compete, and non-solicitation clauses. As such, it is vital that employees retain legal counsel from an experienced employment attorney to ensure that they fully understand their obligations under the agreement as well as any rights that they may be waiving.

Severance Agreements: What Are They? 

At its core, a severance agreement is an agreement between an employer and the departing employee where the departing employee releases potential legal claims against the employer in exchange for receiving monetary benefits to which the employee would not otherwise be entitled.  

The severance agreement is valuable to both an employer and an employee. From an employer’s perspective, obtaining a release of potential legal claims by the departing employee is the only vehicle that assures that the departing employee will not bring legal action against the employer regarding the employee’s separation of employment. From an employee’s perspective, severance allows the employee to obtain additional compensation while transitioning to new employment. 

Can Severance Packages Be Negotiated?

Yes, severance packages can be negotiated however it often depends on the circumstances surrounding the employee’s separation of employment. Indeed, it is important for a separated employee to understand whether the severance package offered is fair and reasonable. That is why it is important to retain an experienced, trusted employment attorney.  

How to Negotiate a Severance Package 

When it comes to negotiating a severance package it is important to follow and understand the following four steps. 

Step 1: Retain an Employment Attorney to Review the Severance Package and Handle the Severance Negotiations 

It is important to understand the legal terms contained in any proposed severance agreement. Most notably, it is important for the separated employee to have a full understanding of the legal rights they may be waiving by signing the severance agreement. Therefore, it is vital that the separated employee retain an employment attorney to explain the same to them.

In addition, it is important for the separated employee to retain an employment attorney to provide an analysis of whether the employee has any potential claims of discrimination, retaliation, harassment, wrongful termination, or the like. If so, the separated employee may have valuable leverage to use in the severance negotiations.   

Step 2: Negotiate the Monetary Severance Terms  

Based on the facts pertaining to the separation of employment, legal counsel for the separated employee may be able to negotiate a better severance benefit for the employee. For example, if the circumstances surrounding the termination may be construed as unlawful, the separated employee’s employment attorney may be in a better position to negotiate a more favorable monetary severance package.  

Step 3:Negotiate the Non-Monetary Severance Terms 

In addition to a general release of claims, severance agreements usually contain other important non-monetary terms as well. As set forth above, such terms typically include non-disparagement, confidentiality, non-compete, and non-solicitation clauses. Depending on the circumstances surrounding the separation of employment, these terms may be important to the separated employee. Accordingly, it is important for the separated employee’s employment attorney to negotiate the non-monetary terms of the severance agreement as well.  

Step 4: Finalize the Severance Package

The final step is to finalize the severance package. Once all the terms of the severance package have been finalized, the severance terms are memorialized in the severance agreement. It is important for the separated employee to review the severance agreement with their employment attorney so that the separated employee is comfortable with the severance agreement and understands the terms of the severance package as set forth in the severance agreement. Once that occurs, the separated employee and a representative of the employer sign the severance agreement, which generally makes the severance agreement binding.