7 Steps You Should Take Before You Negotiate Severance

If you meet with your boss and the head of human resources (HR), you’re probably on the way out. They may present you with your separation agreement, which outlines the terms of your departure, spelling out your severance pay. You’ll probably have a deadline to sign the agreement with a suggestion to consult a lawyer to review the terms. That’s good advice since your package can be made up of many parts.

But, there may also be a lot of gray areas. What your severance pay will be could fall within a wide range. And there is a lot of ground to cover in negotiations beyond your last paycheck. Below, we lay out seven key things you should know if you are ever terminated from a position, including the factors that determine your severance pay.

Key Takeaways

• Most states classify you as an at-will employee, meaning your boss can fire you without reason and not be on the hook for any severance pay.
• The rule of thumb that applies to severance packages—two weeks’ pay for every year of employment—turns out to be a rough average.
• It helps to determine what you can ask for during negotiations and what is off-limits.

1. Know the Key Requirements for Both Sides

Your employer makes it clear they don’t need you for whatever reason. Unless a contract covers you, most states classify you as an at-will employee, which means your boss can fire you without a set reason and not be on the hook for any severance pay. You may have even signed a document confirming that point when you were hired.

Remember that the company wants closure—and for good reason. Your separation agreement signature is worth money because it potentially limits the number of legal issues you (the fired or downsized employee) might pursue. Less hassle now and in the future means fewer billable hours for the company’s legal counsel. You get the picture.

2. There’s a Range of Financial Outcomes

If you’re a top executive, the terms of what you’ll pocket when you pack up are typically spelled out in your employment contract. For everyone else, from upper-level management down the corporate ranks, things are likely not so clear.

That’s where informal guidelines come into play. The rule of thumb that applies to severance packages—two weeks’ pay for every year of employment—turns out to be a rough average. In practice, it ranges between one to four weeks depending on circumstances, according to Jeffrey M. Landes, a lawyer in the labor and employment practice of the New York firm Epstein Becker & Green.

3. Your Severance Depends on Several Factors

Your tenure on the job is just one of several considerations as far as severance is concerned. If you’re fired because your boss feels you didn’t measure up, it’s likely to be on the lower end of the scale. If your company was bought out and forced to shed jobs, you might find your boss wants to be more generous. Ask yourself the following questions:

• How well did you perform and how well is it documented? The better your evaluations and the more popular you are, the more likely that an employer will carve out more severance pay.
• What triggered your dismissal? If the circumstances behind your termination are out of your company’s hands (downsizing as the result of a merger or the axing of an obsolete division), the terms are likely to be more generous.
• Has your company been lax about tracking your performance? Your company is likely to weigh its legal vulnerability. If you were fired because you underperformed, you might gain leverage if your evaluations are unclear or seem to point to good work.

4. Review Your Work History—Closely

Miriam F. Clark, a partner at the New York employment-law firm Ritz Clark & Ben-Asher, says one of the first things to examine with a lawyer are documents that chart your history at the company and how well you performed your job.

The overall picture will help determine whether you have a discrimination case to pursue. If you have grounds for action, there’s potentially a court award or settlement in your future. At the very least—if there’s a scent of something awry—you’ve got additional leverage in severance negotiations.

5. Know Where Your Company Has Flexibility

It helps to determine what you can ask for during negotiations and what is off-limits. Some things your company can negotiate and others are outside your boss’ control. First, there’s the law to consider. For instance, Ohio law requires compensation for the accrued vacation. That’s because it is considered a deferred payment for a benefit you’ve earned, says Cleveland attorney Jon Hyman.

Similarly, your company will probably have little or no leeway for employee benefits. Insurance carriers determine coverage costs—not your employer. You can stay on the company health plan for up to 18 months under COBRA law, but you’ll likely pay a steep price. Your disability coverage through the company will likely end with your employment. You can request that your employer help foot the bill for COBRA coverage or the initial disability insurance cost.

Consider a few other possibilities. According to Clark, employees often ask for the sum of money employers might have earmarked for outplacement services, says Clark. Landes suggests timing your severance pay to maximize what you get in-state unemployment benefits. Delaying the receipt of severance for one month may prevent receiving lower unemployment benefits, for example.

Note

Some employees may be able to negotiate to delay the formal date of their separation from the company to accommodate benefits issues, such as reaching a pension deadline.

6. Tap Into Relationships

Relationships can matter during severance negotiations, too. There are times when employees themselves handle some of the face-to-face hagglings over severance terms instead of bringing in an attorney. Those cases are more common when employees have a close relationship with a boss or someone else on the other side of the table.

7. Remember the Future

Hammering out the best terms in your separation agreement goes beyond money—what you agree to can affect your long-term career. Future job references are also something to take up before you sign off.

Your separation agreement negotiations can address what’s put in writing when prospective employers check into your work history. They can also spell out who provides a reference and what information can be shared over the telephone. That’s especially important if you’ve bounced around a few jobs or had an ongoing spat with a supervisor.

There are also likely to be provisions that require you to keep mum about why you’re leaving and the terms you struck on the way out. If you find the limitations too stifling, you may push back and change them during talks. For instance, you may want to carve out exceptions to cover speaking with your spouse and kids about what happened.

What Is Severance Pay?

The term severance pay refers to compensation offered when the employer separates from an employee. Severance packages often include lump-sum payments and compensation for accrued vacation time as well as additional benefits, such as health and insurance coverage. Severance pay is normally provided to certain employees, including contract workers and individuals who are laid off or fired. It usually does not apply to workers who are considered at-will, which refers to employees who can be let go at any time without any legal reason.

Can I Negotiate Severance?

Yes, you can negotiate a severance package. Make sure you review the package offered by your employer. Be realistic when you try to negotiate if you feel you can. If you are unsure about how and where to start, consult a legal representative to review your separation agreement. They may be able to determine whether the agreement is fair and if you have room to negotiate.

Are Companies Obligated to Pay Severance?

Federal labor laws do not obligate employers to pay severance to their employees. Employers may offer their employees severance packages for different reasons. Packages are generally offered to protect the company’s interests, avoid lawsuits, and improve workplace morale among others.

The Bottom Line

In the end, stay objective and focused. While combing through the finer points of a separation agreement can be a painful exercise, they’re an essential step in getting back on track. A clear mind and sharp focus can help you close the past, secure the present, and pave the way to a brighter future. Above all, remember you’ll be in shock at that first meeting, even if it’s not a complete surprise. Don’t sign anything immediately. And try to talk to an attorney who specializes in employment law before you do sign something.