Negotiating a severance package

Litigation avoidance is very high on most companies’ priority lists, and when a company is considering letting an executive go, one of their biggest concerns is how to keep their soon-to-be-former executive from hiring someone like me to file a lawsuit on the executive’s behalf. The answer is usually fairly simple: a severance package.

A severance package can accomplish two very important things: 1) by providing the executive with various kinds of compensation and benefits, it can calm the nerves of someone who is justifiably anxious about getting back on the job market, and 2) it can head off a lawsuit against the employer. In theory, everybody wins.

An executive faced with termination should proceed cautiously, however, to make sure any package both leaves him in a good financial position and helps him find a new job. Here are some of the questions I’m asked most frequently about severance packages:

  • My employer doesn’t usually offer severance. Why would they give me one? If a company does not have a written severance plan, then it is generally not obligated to give any severance whatsoever. That’s what unemployment benefits are for. In some instances, a company may have an informal policy of giving severance, but they are not obligated to so (without a formal written severance plan). Nonetheless, I always tell my clients that it never hurts to ask. If you’re already out of a job, what’s the worst they can do?
  • How much should I ask for? First, it’s important to know that a severance package isn’t just money. But since money is probably your first concern, try to suggest a figure that is based on expected months of unemployment, and use that as the rationale. Also, if you have unvested options or stock, ask that the vesting be accelerated. Regarding unused vacation or sick time, it helps to check written company policy, if any. If there is no policy, you can still ask for it as part of a severance package. It’s also always helpful to ask for your COBRA payments to be reimbursed for the number of months you expect to be unemployed (keep in mind you may have a waiting period for medical insurance at new employer).
  • What do I want besides money? In order to make it easier for you to find a job, you’ll want to ask for a release of any non-compete obligations, as well as a good reference. You might also want to ask that you be listed as eligible for rehire or that your termination be called a layoff, if it isn’t already.
  • What if my employer asks me to sign a release? Don’t be surprised if they do, since that’s one of the reasons your employer would offer a severance package in the first place. While it’s typical and understandable to release potential claims arising out of the termination of your employment, you typically would not want to release any vested benefits such as pensions, stock, options, etc. So you’ll want to read any such release very carefully.

For all of these reasons, I advise any executive who has been terminated (or thinks he might be) to consult a qualified executive employment lawyer for help in analyzing the potential legal leverage you might have in negotiating your severance package.

Don’t let the bruised ego you may be feeling upon learning of your imminent termination keep you from ensuring your continued employability and your family’s financial well-being.


This entry was posted in Executive contracts, Legal, Non-Competes, Stock Options and tagged , , , , , , . Bookmark the permalink.