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7 key considerations when negotiating a severance package

On Behalf of | Dec 7, 2021 | Employment Law |

If your employer offers you a severance package, you do not have to sign and accept immediately. It is often in your best interest to take your time and review the details. Many of these are subject to negotiation, and knowing what to look for may help you reach a better agreement.

There’s a lot of room for employers to approach severance packages in different ways, but the agreements tend to include many common components. Here are seven considerations to review when negotiating a severance package.

Severance pay

Severance pay is the first and most obvious consideration, but there’s still a good deal to negotiate.

Of course, you have the raw amount, and Forbes notes that it might help for you to know what others have received in the past.

You also want to consider how you will receive the payment. Will you receive it as one lump sum or as a series of installments? If you won’t receive it as a lump sum, you want to keep out an eye for any potential offsets or claw backs for instance, violating a noncompetition agreement is a typical basis for the employer to stop making payments and to demand repayments of what they have already paid. Despite the initial figures, these provisions can easily reduce the payment you receive.

PTO and vacation

If you worked hard every day and gave the company your time, will it give you back the time it owes you? Your severance package can address any of the PTO or vacation time you may have accrued and not yet spent. Under Michigan Law, your rights to PTO and vacation are based upon the written policies of your employer.

Insurance

You have the right to continue with your company’s health insurance plan for up to 18 months under the Consolidated Omnibus Reconciliation Act (COBRA). However, unless your former employer agrees to continue paying its share of the premium, you will have to pay both your share and the portion the company formerly paid. Of course, if your company has fewer than 20 employees, COBRA does not apply.

You may also wish to negotiate for continued life and disability insurance while you seek new employment. You might request coverage for a set duration, or you might request a lump sum.

Pension and vested stock options

Pensions are becoming increasingly rare, and employees who receive an offer of early retirement will want to understand how the offer might affect their pensions. Payments are typically based on your years of service, age and salary prior to retirement, and you must typically reach full retirement age to receive the full benefits.

Likewise, if you have stock options that have not fully vested, many employees request accelerated vesting. You might also request an extension of the period in which you can exercise your stock options.

References

As you consider your transition to your next job, you might also want to consider the references the company is likely to provide your future employer. Some people’s severance packages include agreements about the type of language their companies will provide to potential employers.

Termination date

Many times, employers want to start the clock on your severance benefits as soon as you sign. However, these same employers might want you to finish certain projects or client work. Sometimes it is possible to negotiate a per diem for additional work.

Restrictions

Unless they are bound by local laws or company policies, most employers do not need to offer severance packages. That means, as Fast Company mentions, many employees hesitate to question the terms for fear their companies might think they’re rejecting the offers. However, while you stand to benefit, to one degree or another, from most of the package, there are some common parts that benefit the company. These include any number of restrictive agreements:

  • Non-competes
  • Non-disparagement contracts
  • Non-disclosure agreements

Depending where you are and where you’re headed with your career, these terms might not be a worry, they may prove a simple nuisance, or they may be deal-breakers. While many states will invalidate overly restrictive, open-ended non-compete agreements, these terms can all be legally binding. It is often a good idea to review them with an attorney. If they look like they could prevent you from furthering your career, you might even reject the package. Sometimes the severance pay and other benefits are not worth accepting these restrictions.

Don’t feel pressured to sign without due consideration

You want to understand the terms of your severance agreement before you sign. You may also want to take some time to determine what you would consider fair. After you review the legal concerns and formulate your arguments to show how much you helped the company, you might find yourself in position to negotiate for a better package.

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