We all have made decisions we regret later on at some point in our lives, especially related to our work. Here are three very good reasons why accepting a severance pay may not be in your best interest.
Reason 1: Confidentiality Clauses and Clawbacks
You were just presented with a severance package but you hold the brass ring of all time employment war stories there is. You plan on exposing your employer and you are extremely agitated. Without a doubt, you think you have the greatest case in the world. Then you discover the severance agreement contains an iron-clad confidentiality clause that will prohibit you, your wife, your children and your parents, from ever telling your big story about a colossal corporate wrongdoing. If you accept the confidentiality clause and later breach the provision through disclosure, you risk the company taking back all of the severance pay and getting sued by the company. At this point, the severance pay must outweigh the potential monetary value of public exposure and your credibility as a new whistleblower. But your career may take a dive. This is the classic catch-22 I see all too often. You may not want to accept the severance agreement if the future monetary reward is great.
Reason 2: Non-competition and Non-solicitation Clauses
Remember that document you signed when you were on-boarded and were not really sure why you were checking the electronic box? Yes, that one. The non-competition and non-solicitation agreement you never intended to enter into. Now, upon separation, your employer hands you the severance agreement and you see an acknowledgment provision relating to the old non-competition and non-solicitation agreement. In the alternative, the non-competition and non-solicitation agreement is presented in the severance agreement and you never had one while working for the company. It gets worse, you were just offered a higher paying position with a competitive company which also does business with the employer (yes this does happen) or the new employer is both the competitor and the former customer/vendor). In either example, you want to accept the severance pay because it is modestly reasonable, let’s say $75,000-$100,000. But your new offer pays a salary of three times the severance amount and several years of employment. Obviously, you may want to decline the severance if this the first time you have been presented with a non-compete and non-solicitation provision, as the future salary far outweighs the severance being offered. You may want to ask the new employer to offer a sign-on bonus in exchange for the leave behind pay (severance and bonus). But what do you do if the non-competition and non-solicitation agreement was signed back on your first day of work? In this case, signing a severance agreement acknowledging the original non-compete only makes matters worse. You are stuck with the restrictive covenants.
You may need to challenge the enforceability of the original agreement by declaring it void for lack of consideration (you did not intend to enter into it). We do this all the time but there are risks associated with moving forward with employer number two, mainly having an injunction filed against you. Again, the future salary will dictate your choice here and hopefully, your new employer will financially support your choice to compete.
Reason 3: Severance Amount Is Too Low
Let’s assume you have worked for the employer for ten years before being offered a severance package. When you open the agreement, the severance amount is small. You discover the confidentiality clause and the restrictive covenant provisions mentioned above. You conclude the severance is just too small in comparison to the loss of future economic value of not working in your industry. You can decline the severance and sleep well at night knowing you can remain in your chosen field of work. In the alternative, you can hire an employment attorney to scope out any and all possible legal claims to leverage on your employer to get a higher severance amount. This is what we do every day.
If you’ve been terminated by your employer and offered a severance agreement, let the employment lawyers at Carey & Associates, P.C. help you evaluate the pros and cons of signing the agreement.
You have been terminated from your employment and have been fortunate enough to be offered the opportunity to separate from your employer by way of a severance agreement. A severance pay out can certainly be the silver lining in the otherwise unfortunate scenario of losing your job. In fact, it might even seem too good to be true – receiving compensation from your employer without having to work anymore and sometimes in addition to earnings from a new position. But as they say, if something seems too good to be true, it probably is. In fact, severance paid to a soon-to-be-former employer does not come FREE and there are usually substantial conditions that come along with this payment, or what the law refers to as “consideration.” As the employee, it is crucial that you are fully apprised of what you are giving or giving up in return for this payment. Knowing this at the outset means that the agreement under which the severance is offered needs to be meticulously reviewed, understood and negotiated, before you sign.
It is important to begin any conversation of severance agreement with the understanding that a severance agreement is a contract and as such, once executed, the terms and conditions are binding for both parties. While severance agreements can take many forms and vary substantially, these agreements are almost always generated by the employer and provided by the employer to the employee. As such, there are certain provisions that typically find their way into these agreements that can work to the detriment of the employee and to the benefit of the employer.
Here are examples of such severance contract items that need to be carefully considered – before you take the money and run.
Release of Claims/General Release
Almost every severance or settlement agreement will have a release clause. In fact, these agreements are actually sometimes titled, “Severance and Release” or “Settlement and Release.” It is important to fully read and understand the particular release language in your agreement. In essence, a release means that in return for the settlement pay out, the employee agrees to release the employer from any and all claims the employee might have. It is important to note that often these releases are retroactive and proactive, thereby prohibiting the employee from making a claim against the employer for something that occurred prior to the signing of the agreement as well as for any claims that might arise or which might become known to the employee AFTER the signing of the agreement. These release provisions can be extremely broad and restrictive and so it is imperative to fully understand what you are giving up in this regard. You are essentially agreeing not to bring any form of claim at any time past, present or future against your former employer.
Amount of Severance
The amount of severance provided can vary greatly depending on such factors as the situation under which you were terminated, the length of your employment and the position you held. But this amount can also be wholly arbitrary and not surprisingly, the employer will try to get away with paying as little as possible. It is advisable to look back to your initial employment agreement (if you have one), as it might set forth the specific terms of severance to which you are entitled. In addition, your employer might have a company-wide severance policy. It is also important to make sure any accrued or unused vacation days are added to your severance in the form of additional pay out. In many instances, the amount of severance can be negotiated and we strive to get our clients the maximum severance pay out under the circumstances.
This is one of the most important clauses to understand in your severance agreement. Most agreements will have some sort of a non-compete which essentially means you cannot go and work for or with the “competition” after leaving your current employer. Depending on the specific language of the non-compete, these covenants are typically highly restrictive and might actually prevent you from earning a living in the field in which you are qualified. They often significantly limit the period of time and geographic area in which you can seek re-employment and go back to work. It is ideal to have these non-competes stricken from the agreement. In the alternative, the next best course of action is to modify this clause to make it less prohibitive so that you are not denied the right to earn a living.
Severance agreements often have an expiration date masked in the form of a “review period.” Many times this is overlooked by the employee as it is not set forth as an outright expiration date of the severance offer, but rather as a period of time within which the employee has to review and sign the agreement. While the amount of time can vary, a typical review period is 21 days. It is important to be mindful of this deadline as the severance offer can be rescinded if you do not sign within the time frame set forth in the agreement. If you feel that you will need more time to fully understand and be counseled on this agreement, it is advisable to seek an extension of the review period at the outset so that you have adequate time to retain counsel, address and negotiate any issues, and not feel pressured or rushed into signing.
Disparagement and Confidentiality
Many severance agreements will have a disparagement and confidentiality clause. What this basically means is that the employee is prohibited from disparaging the company in any way and that the employee is agreeing to keep the terms of their separation from the company and the resulting severance agreement confidential. We advise our clients to modify this clause so that the disparagement and confidentiality restrictions are MUTUAL. In other words, why should this be one sided? It is preferred that both the employer and employee be prohibited from disparaging each other in the future, and that both parties be bound to keep the specific terms of the termination and severance confidential.
Bridging Pay or Set-off
Many severance agreements include language that reference severance pay out as money intended to “bridge” the time between when you are terminated from your current employer and when you seek re-employment and regain earning a living. In essence, what this seeks to accomplish is that once you gain new employment, you are obligated to inform your former employer of this and that your severance will stop on the first day of your new employment. Severance is often paid out over the span of the severance period, in conjunction the company’s usual pay roll schedule. However, we believe severance is intended to and needs to be treated as a lump sum settlement amount to which you are fully entitled, regardless of if and when you begin a new job. Even though it might technically be paid out over the course of the bridging period, at no time, even in the event of re-employment, should you be deprived of the full amount of this settlement. We will always seek to have this set-off clause removed from the agreement.
While every severance situation is unique, generally speaking these are just some of the types of matters that we counsel our clients on when they come to us after having been terminated and presented with a severance/settlement/release agreement. Our goal is to educate and counsel the client on what they are signing and specifically what they are giving up in return for the severance payout. We will then discuss what needs to be negotiated and work with the employer and opposing counsel in getting an optimal, more balanced and legally sound agreement presented to our client.
If you’ve been terminated by your employer and offered a severance agreement, let the employment lawyers at Carey & Associates, P.C. help you feel confident before signing on the dotted line.
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Parting ways with an employer isn’t always a cut and dry process. Especially if you’ve invested years of your time and ideas to move the company forward. If you’ve recently been let go by your employer and are unsure how to proceed with the severance package you’re being offered, here are the top 5 things you should know about severance agreements and your options.
1. Have an Employment Attorney Review the Severance Agreement
If you had a medical condition, you would seek the advice of a physician. The same logic should apply when you have a legal situation such as an impromptu termination where the employer provides a severance package. There is a direct correlation between retaining an employment attorney to negotiate your severance package and the amount of the increase in severance pay. I have seen many people over the last twenty years attempt to negotiate their severance agreements by themselves with little success in the way of increased severance. Employers simply say, “This agreement is a take or leave it deal,” when employees attempt to negotiate the agreement on their own. An employment attorney can dramatically modify an existing severance agreement to make the deal fair and balanced, including the removal of one-sided non-competition agreements. The employment lawyer can also increase severance pay by developing legal claims you did not know existed.
2. If You Want More Money, You Need a Legal Claim
Face it, if you want more money in severance pay from your employer, you need to hire an employment lawyer. An employment attorney will review your detailed factual narrative and ask very pointed questions to develop legal claims that can be used to increase the amount of severance pay you will eventually receive. The employment lawyer can also diagnose the illegal activity committed by the employer and confront the employer with a sworn affidavit supporting a comprehensive notice of legal claims. When the employee substantiates his/her case in this manner, the employer often times increases the amount of severance pay the employee will receive under the severance agreement.
3. You Can Extend COBRA Coverage
An employment attorney will often time the length of the severance pay with the length of the COBRA period. This is a routine provision that most employees do not know they can increase. In fact, you can obtain COBRA coverage for up to 18 months.
4. Confidentiality is Key with Severanc Agreements
When you receive severance compensation you provide a full release of claims against the employer that is completely confidential. Employers shield themselves against potential liability and publicity by using broad confidentiality provisions that cover you, your attorney, your financial advisor and your family. An employment attorney can narrow the confidentiality so that it is only applicable to you, relieving the unnecessary burden on your accountant, attorney and your family.
5. Legal Fees Paid By the Employer
The employer gave you the severance agreement to review with an attorney. Most employers include a provision that you acknowledge you have been given the opportunity to review the agreement with an attorney. Then, the employer must pay your legal fees to review their one-sided severance agreement. The agreement should be modified to include coverage for your legal fees.
If you’re looking to get the most out of your severance agreement and don’t know where to start, contact Carey & Associates, P.C., we concentrate in employment, wrongful termination, discrimination, whistleblowing, and more. Get the severance you deserve. Contact us now!
If you believe in the natural order of things in the environment, nature will take care of itself all on its own. When mankind introduces unnatural externalities into the orderly flow of evolution, fundamental changes develop that alter the natural order in nature. Take honey bees and Bridgewater Associates for example, each have been infected with a chemical or unnatural pathogen that is slowing destroying them; don’t mess with Mother Nature.
Honey Bees and Neonicotinoids
I raise honey bees at my home, caring for about 10 hives each year. Bees are a bewildering microcosm of chaos but in reality they are a highly efficient hierarchical system of organized labor supporting their beloved queen bee. Honey bees function just fine left alone. They will raise their brood into worker and drone bees. In this culture the females run the show and everything turns out sweet as honey. By the way Drone (male) bees serve only one limited purpose, to help the queen produce more bees. There is no talking, complaining or rating systems among the employees, just a system of chemical pheromones and directional dances that make the hive hum and maintain an adequate balance sheet of honey food stores which my neighbors and I enjoy. Honey bees are born with a coded instinct to get along, just like employees (i.e. the golden rule). Then enters MAN, who seeks to disrupt the natural order of bees with a new language and culture. To yield more crop production and make lawns green as the emerald isle of Ireland, man introduces chemicals that interfere with the language, culture and natural order of bees. Please stop using pesticides on your lawn. Not only are pesticides slowing killing you, they are deadly to honey bees and other pollinators. No bees, no food, no you! Learn a new vocabulary word- Neonicotinoids. Connecticut and the European Union is moving to completely ban this epidemic use of the chemical, which has been proven to cause colony collapse in bees. I can personally attest that Neonicotinoids kill bees, I lost 20-30 hives in the past three years because my fellow citizens treat their lawns with this chemical. I hope for a better future and continue to raise bees.
“Principles” Are Not Working at Bridgewater Associates
Then there is Bridgewater Associates, located less than three miles from my office. I am not saying the company ever used pesticides on employees, but maybe they used a psychosocial pathogen to infect their culture, aka “The Principles”. The company and its founder have introduced an unnatural externality into the work place previously never seen in the working world. With the introduction of a new language and culture, which I comically refer to as “Newspeak”*, the company’s founder Ray seeks to re-order the natural order of human interaction at work- impacting 1500 employees at its’ two campuses in Westport, Connecticut. The company’s Newspeak presumes we are weak and dysfunctional and we need to be fixed. Bridgewater Associate employees must reconcile themselves with the founder and leader “Ray”, who is on a self-promotional advertising campaign these days to compel future disciples to follow him on his legacy, to buy into the Principles. When you force employees to hold ipads and rate one another during every human interaction (only the negatives and not the positives) something seems strangely unnatural. The employees must follow Ray because they have no choice. Either follow or exit the hive after two years or less with significant handcuffs related to confidentiality and noncompetition. Employees are people, not machines processing big data. They have feelings, emotions, disabilities, and sometimes it is just OK to be vulnerable and weak. Presumptively, employees seek out encouragement, optimism and uphold a personal desire to succeed in their careers. Principles or Newspeak seeks to prey upon the weak and injured and suck dry any semblance of empathy and “Compassion”, a Buddhist concept (Bodhicitta or “enlightened mind”). Yet Ray wants to sell his brand of Principles to every corporation and we should all be concerned.
(*“Newspeak” was a phrase used repeatedly in George Orwell’s infamous novel 1984 and fully described in the Appendix to the novel. “Newspeak was the official language of Oceania and had been devised to meet the ideological needs of Ingsoc or English Socialism…The purpose of Newspeak was not only to provide a medium of expression for the world-view and mental habits proper to the devotees of Ingsoc, but to make all other modes of thought impossible. It was intended that when Newspeak had been adopted once and for all and Oldspeak forgotten, a heretical thought—that is, a thought diverging from the principles of Ingsoc—should be literally unthinkable, at least so far as thought is dependent on words…For the purposes of everyday life it was no doubt necessary, or sometimes necessary, to reflect before speaking, but a Party member called upon to make a political or ethical judgment should be able to spray forth the correct opinions as automatically as a machine gun spraying forth bullets. His training fitted him to do this, the language gave him an almost foolproof instrument, and the texture of the words, with their harsh sound and a certain willful ugliness which was in accord with the spirit of Ingsoc, assisted the process still further.” Id.)
Contact Mark Carey at firstname.lastname@example.org.
So, you’ve been laid off. Your soon-to-be previous employer has handed you a packet of documents outlining your severance package and you have a ton of questions. Should you sign your severance agreement now? Should you take the time to look it over? What does all of this mean? Whew! Take a breath. We know this is an extremely overwhelming time for you and your family, and we’re here to help. Here is what you need to know about your severance pay:
What is Severance Pay?
Severance is a term of your employment agreed upon by you and your employer. Your employment contract may stipulate your entitlement to severance pay, or it may be a company policy applying to all employees. Regardless, employers must establish a documented, justifiable business reason for your layoff resulting in severance compensation. You should speak with an employment attorney to understand your severance rights as an employee.
What is your severance pay based on?
Your severance pay is determined based on the number of years you have been with your company, whether you are in a management or executive position in the company and the size of the company. Your employer will also take into consideration whether severance is listed as a part of your employment contract.
How is Severance Paid Out?
Severance is not always monetary. Instead of handing you a check, some companies may extend your health benefits for a period of time or offer career coaching and outplacement consultants to help you jump into a new position. If you’re unclear about how your severance will be paid out, or do not feel it is in line with the value you brought to your company, speak with one of our severance negotiation attorneys in Connecticut today.
Speak With an Employment Attorney in Connecticut Today
Severance packages can affect your ability to claim unemployment insurance, and there may be year end tax liabilities if you receive a lump sum or continued salary payments. We want to make sure you are making the right decision for yourself and your family now and in the future. Before signing anything, sit down with one of our employment attorneys today to review your current severance package, discuss how you could receive more for your layoff, or to review your employment agreement as a whole. Let us help you start this next chapter in your career.Contact Carey & Associates, P.C. today!
Do you ever have those days when you did your job so well your client actually got what she wanted?
As you know, my daily work revolves around your work life. I routinely handle a whole assortment of employment law cases from minor to the complex wrongful termination, discrimination and severance negotiation cases. I carry my obligation to advocate for my clients best interest a little too far. I often find myself buried in the minutia of every single factoid, inference and emotion emanating from the client fact pattern- seeking to make the relevant connections within. I overindulge in developing the hot trigger points in the drama my clients share with me, ever looking for the inside story the company would be most concerned about being publicly disclosed. I fixate on the highest level of pain I can inflict on the employer for the sake of my clients’ best interests.
I can transition clients along my process in an easy to understand and comfortable way. I empower clients to stand up to large companies and tell them “no”! I fully explain all the possible options to choose from, including the risks of doing so. So, the clients are well informed and grateful to receive all the new information their employers never dreamed of disclosing to them. I even give my clients a 90 minute free consultation with a seasoned Human Resource Director who I contract with.
Well, in some cases I do my job too well. Recently, I was pushing a case along through early settlement discussions, but not getting any real traction from the employer in terms of a higher dollar figure. In fact, they were offering roughly $25,000, a low ball offer in anyone’s mind. After explaining to the client that she needed to leverage up further and draft a complaint to file in court, the client understood and agreed. We gave the employer an immediate deadline and a new counter offer, way above what the employer was willing to pay during mediation. I drafted the complaint and continued researching every angle. The client added her input to the complaint and I polished the complaint, digging deep into the theme of the case and the employer’s weaknesses, i.e. prior employment practices and internal examples of bad behavior they never would tell their public pension fund clients. In the end, that employer, absent objection, actually paid my client’s number nearly $400,000 (nearly double her salary). The client was even released from a two year noncompetition agreement she never wanted in the first place. The Client reported sleeping calmly that evening, shedding tears of relief.
I did my job too well and kept the client out of litigation; saving us all taxpayer money by not pushing this case through the courts.
The General Electric Company, headquartered in Fairfield, Connecticut, is leaving town and the state to avoid a substantial tax increase being imposed by the Democratic Governor. http://www.wsj.com/articles/ge-postpones-decision-on-moving-connecticut-headquarters-1450540423 GE is the largest taxpayer in town and one of the largest in the state. In January 2016, 800 local employees will learn the fate of their employment. Will these employees be relocated to Boston or New York or laid off? Will the company issue a WARN notice? https://www.doleta.gov/programs/factsht/warn.htm
It is a sure bet that a number of employees will be laid off. When Conagra Foods decided to relocate in October 2015, the company cut 1500 jobs. Kraft Heinz also cut 2500 jobs when it relocated. http://www.chicagotribune.com/business/ct-conagra-headquarters-chicago-1002-biz-20151001-story.html. Given GE’s ongoing dismal stock performance http://performance.morningstar.com/stock/performance-return.action?t=GE, job cuts will be used to help bolster the value of the stock.
We know two important facts about GE, they have an arbitration policy (by agreement), but they do not have a severance plan (See http://freeerisa.benefitspro.com/default-loggedin.aspx for free plan information) entitling employees to a set amount of weeks per years of service in exchange for a full release of claims. If you are one of the unlikely employees laid off, do not expect severance but do expect the company to compel you into arbitration if you decide to file suit for wrongful termination. The arbitration policy was initiated after the company received a jury verdict for $10,000,000 a few years back. GE deliberately eliminated any further legal claim information from the internet and the courts; the type of information I search for every day. In effect, GE silenced any and all employee complaints about the company from public knowledge.
Even though GE does not have a severance plan, they do maintain a severance policy or practice, and you should negotiate the severance amount being offered. Please remember, you will be asked to sign a lengthy severance agreement, waiving all legal rights.
For more information, please contact Mark Carey at 203-255-4150 or email@example.com.
The real reason companies pay severance compensation is because they fear being sued by folks like myself. Employers are super paranoid over employment lawsuits, and the severance amounts I have received prove it. I have participated in hundreds of severance cases over my lengthy career and I would like to share my observation in an attempt to contribute information into the dysfunctional and incongruent playing field between employers and employees that continues to exist unimpeded.
Employers maintain a constant fear of litigation because they know they are breaking the law regarding their treatment of employees. This is the only reason why I have been so darn busy over the past two decades fighting employers. I refuse to give employers the benefit of doubt due to mistake or ineptness, as that viewpoint is foolish and naïve. Big businesses and small, save a heck of a lot of money when they unlawfully terminate employees, fail to pay wages and fail to pay employee benefits. A relative with a business degree once remarked that companies are in the business of assessing and taking risks. That is exactly the behavior I have been watching my entire career. Employers know their actions are illegal, but take the risk nonetheless. They do it because the financial motivation is enormous. They know the variables of the transaction and manipulate them to their favor. Finally, employers see employees as powerless to do anything about, which in my opinion is poor business judgment. The more often employees confront guilty employers, the less likely employers will continue to abuse employees.
My observation is simple. The more dollars employers offer during the severance negotiation, the more likely the unlawful activity occurred. On average, I have seen final severance amounts in the range of $150,000, $300,000, $550,000 and even $750,000. Of course, I cannot disclose actual case amounts to due confidentiality, but I wanted to give you a feel for the amounts employers have been paying to cover up their unlawful behavior.
The aforementioned amounts are not the result of ERISA severance plans or pre-negotiated executive severance agreements, but reflect cases where I have demonstrated employer liability across a spectrum of claims without the use of litigation. Specifically, and it is no secret, you have to have a valid legal claim(s), supported by lengthy detailed facts, in order to convince the employer of their own misdeeds and get them to pay severance. I have a rule of thumb, roughly 80% of the time the employer would rather negotiate a pre-lawsuit settlement, then risk the public disclosure and extreme litigation costs. Employers also know that once other employees learn of the disastrous liability, others will follow, so they quickly put a lid on the deal with a severance agreement containing a strict confidentiality clause. However, I routinely receive calls from multiple employees from the same company, including people previously named in prior cases. Fortunately, news does travel fast amongst employees before employers can lock down the confidentiality provision in the severance agreement.
Employees faced with a severance offer should dumpster dive into the facts and consult an employment attorney. Severance compensation could result with limited financial investment into legal fees. If you would like more information, contact Mark Carey at 203-255-4150 or firstname.lastname@example.org. Thank you for reading.
© Carey & Associates, P.C. October 7, 2015.
(This is an advertisement, no legal advice is intended)
I handle severance agreements every day. In fact, I probably have two to three severance negotiations occurring at any moment in time during the week. I want share some insights about negotiating severance agreements.
1. The Basics
A severance agreement is a legally enforceable agreement between you and your employer. You can negotiate it up front or upon exit. Once you sign the agreement, you give up any chance of suing the employer in the future. Always use an attorney to ensure you know what you are receiving. An attorney may have a vastly different opinion of the agreement, your claims and your leverage during negotiations. If a lawyer determines you do have a legal claim to increase the amount of severance, then it takes about ten (10) minutes to explain the agreement. If the lawyer determines you have legal claims to assert, the time period to conclude a severance negotiation may last from two to four weeks, depending on the circumstances. Above all, you need to remember, this is a transaction involving your investment of time and money, not emotions. There is a risk in every severance negotiation that you may end up with what was originally offered, but you will not know until you make a written demand for more severance. Your investment in the attorney’s time to review and negotiate the agreement can have enormous payoffs in terms of a higher settlement, much larger than what you paid in legal fees.
2. How Much is Too Much
There are no rules about how much to ask in severance. However, the more you demand the more likely you will find yourself in litigation. Think in terms of multiples of your base salary and bonus.
3. Silence Means Silence
All severance agreements contain confidentiality clauses that restrict you from disclosing the contents of the agreement. This is a standard provision in every agreement. It is amazing how many people tell me they heard what other employees received in severance, even though those employees had a severance agreement containing a confidentiality clause. When you disclose your severance you run the risk the employer will find out and you forfeit the severance, while the release of claims remains in force. Do not discuss a deal you already signed, say “no comment”.
4. How To Leverage Up
If do not like what the employer has offered, find a legal claim to assert! Obviously, consult an employment attorney and read articles about breach of contract, discrimination claims, wages etc. In my experience, nine times out of ten, an employee who does not negotiate through an employment attorney will never extract a higher severance amount from the employer.
5. Non-Competition & Non-Solicitation Provisions
A severance agreement may have provisions reaffirming previous non-competition and non-solicitation provisions or create brand new ones. You need to become aware of the existence of these provisions because your next job may be prematurely interrupted by the old employer for violating these provisions. As a general rule, if you never signed these types of agreements, do not agree to them in the severance agreement. Most employers will back away if you refuse. However, if you previously signed non-compete and non-solicitation agreements, you will be unable to eliminate them from the severance agreement. You need to consult with an attorney to determine if there exists a way to get out of these restrictions on future employment.
6. Time Limits to Sign Agreement & Revoke
There is no rule or law which says you have to sign a severance agreement by the deadline set by the employer. However, if the severance agreement is governed by a severance plan, the plan may provide for a specific time limit. In my experience, the time limit is set arbitrarily by the employer and is either twenty-one to forty-five days from the date the employer offers it. I generally seek an extension of the deadline while the parties are negotiating in good faith. There are state and federal laws that employers must provide a reasonable period of time to review the agreement. Once you sign and you are over the age of forty, you have seven (7) days to revoke the signed severance agreement. Some employers violate this rule by wording the revocation in such a way that the seventh day revocation deadline is close of business instead of midnight. So read the agreement and pay attention to deadlines. I have never had a client revoke an agreement.
7. No Right To Reemployment
As a general rule, employees can seek reemployment after they sign severance agreements. Today, large employers have multiple subsidiaries and do not want to limit the ability to hire. In some of my deals, the employer demands the employee waive any right to seek reemployment.
8. Severance Plans & ERISA
You probably did not know it, but a severance agreement may be governed by a severance plan under federal law. ERISA is a federal statute that governs your rights under a company sponsored severance plan. The plan contains procedures for filing a claim in the event you are denied severance. Generally, all employees are participants in a severance plan offered by the employer. The plan controls how much severance you are entitled to. Bottom line, the plan requires you to sign a release agreement to obtain benefits. I have litigated cases where the severance agreement itself becomes the severance plan, containing one participant, but the availability of this claim only applies when the employer revokes the severance agreement after it was issued.
9. Mutual Releases of Claims
Always ask for a mutual release of claims in every severance agreement. This means the agreement contains a release of all claims by the employer against you, even though you did not do anything to warrant a legal case by the employer. It is just a cleaner divorce, if both parties agree to a mutual release of claims. You never know what an employer might do in the future.
10. No Settlement, But Litigation
If the employer refuses to negotiate an increase in severance or more favorable severance terms, your next step is to file administrative complaints with state and federal agencies or file a lawsuit. Obviously, a lawsuit should be last resort alternative. Remember, 98% of all cases settle, but it is just a matter of when. You may have to expend resources to litigate the case to convince the other party of their liability. One caveat, do not litigate cases which have borderline claims (50/50).
For more information, call Mark Carey at (203) 255-4150
Severance Defined: a gift, something you have earned, you give up legal claims for it, you negotiated well to get it, it’s a bonus so go to the bank, a windfall because you got another job quickly!
Severance can be negotiated upfront before starting the new position or it can be negotiated on the backend.
Upfront Severance Negotiation: You can negotiate severance before you start working for the new employer and this is typically associated with the negotiation of the employment contract. Employers will attach the severance agreement inside the employment contract or create a separate agreement. You can determine whether a public company offers a severance package in their employment agreements by searching the company profiles in ExecuCite.com or at SEC.gov (public companies only). You can also ask the company during the offer stage if they can negotiate severance upfront. A company may even negotiate severance upfront to an at-will employee, but you would not know unless you posed the question- so don’t forget to ask or you will not receive!
Let’s assume you are at the negotiation table and the parties are discussing the terms of the new employment. How do you set the right amount of severance to ask for? There is no right or wrong answer to this question. Please note, severance is often referred to as 1x, 2x or 3x of your base salary. As a rule of thumb, individuals ask for one year typically- but don’t shoot me if the company was willing to give two years. Seriously, a one year severance arrangement is the reality for most people. An executive or employee can “extract” a two or three year severance only in a narrow set of circumstances. First, you must possess an incredible amount of negotiating leverage to extract a straight 2x or 3x severance. This means you are either a very popular and sought after executive/employee or huge revenues just follow you at every company. Please note, anyone can negotiate a 2x or 3x severance, it just depends on how well you can sell the idea and what your worth is. Second, you can obtain a pre-offer 2x or 3x severance by way of a change-in-control agreement. This is truly a narrow circumstance because all the variable conditions set forth in the change-in-control plan have to be satisfied. (See Change-In-Control discussed in ExecuCite.com) The board of directors will dictate what those variables are, and the bar is often set pretty high. During the pre-offer negotiations an executive can bargain for a change-in-control severance, but you better know what you are talking about before you make the proposal and have a good reason(s) for the board to grant you this type of severance.
Like any severance, in order to receive the severance monies you will of course need to sign your legal rights away. The company is literally buying your known or unknown claims well in advance of your departure from the company. Now, there is a rule about settling and waiving future claims- its against public policy and the courts do not enforce such future waivers. What normally happens during pre-offer severance negotiations is the parties will negotiate a severance deal involving two components: (1) you agree to sign a mutually agreeable severance and general release of claims upon termination (usually termination for good reason, for no cause, or change-in-control); and (2) the parties will agree during the pre-offer stage on the amount of money, i.e. 1x, 2x or 3x.
How does “termination for cause”, “without cause” and “termination for good reason” affect a severance payout? These terms I just mentioned can be placed in a severance and/or employment agreement. If you are terminated for cause and you cannot defend or cure the “for cause” allegation- this means you really screwed up (or intentionally set up) and you will not be receiving severance! If there is a “without cause” reason given by the employer, you will get severance. In this situation you may have been smart enough to craft language into the severance agreement that automatically grants you a severance for quitting for “no reason” given. If you got this provision in your favor, you have negotiation power and guts. Good work! In a majority of cases, if you quit without cause or the company terminates without cause, you will not receive severance pay. The remaining way to get severance is to demonstrate a good reason for your sudden departure, such as office relocation, material change in job duties, demotion, change in compensation-downward etc. Under this last method, you will need to have your material evidence ready to present directly to the company and their counsel.
It is a good idea to keep a confidential file or files at home, wherein you store emails, memos, and other supportive evidence. You can also store whistle blower evidence, but be careful whether you pull the trigger on this sort of thing because it can have professional repercussions if the word got out. However, a well played game of bluff on a whistle blower claim, especially in the Sarbanes-Sox era, does have tidy rewards.
Backend Termination Severance Negotiation: This may well be the most common severance negotiation most people will encounter. Obviously, you did not negotiate or could not negotiate a severance agreement at the start of employment. I want to discuss how to maximize your return on investment of your time and money. Think of this deal as an investment transaction. You are going to put in time throughout your employment to collect favorable evidence (documents and statements), time with your attorney, and then spend money on legal fees. The goal is to obtain a severance that easily pays off the legal fees and your time spent, but also returns a hefty windfall!
In order to conduct a productive severance negotiation, you need to collect documents, statements and other evidence throughout your employment. This may sound strange and evoke ideas of paranoia. But contemporaneous journal entries along with gathering evidence in your personal “home file,” will produce the types of negotiation fire-power you will need to obtain a substantial severance. Yes, I am pre-thinking the end result, but you have to.
I will explain it in a different way. When you go to an employment attorney with the news you just received a severance agreement and you are still carrying your box of personal belongings, the attorney will want to know every factual detail of your career with the former company. You will end up recreating a factual timeline from your memory, notes, emails, documents and conversations with co-workers. You may not capture all the details, missing vital factual evidence. An ongoing contemporaneous effort to collect data will save you a great deal of time and money!
Put it this way, you need to protect and save your own butt because there is no one at your company who will! Don’t be suckered into the “firm mentality,” that the company would never harm you because you are so loyal and trusting of the company.
A successful severance negotiation involves “issue spotting.” But if you are not an attorney how do you know what to look for? Use your instincts and the smell test. If occurrences at work “smell bad”, well they probably are. There exists a phrase, “being thrown under the bus.” This happens when everyone suddenly treats you differently and you do not know why. Well, you better find out why and start taking notes and names. But keep your activities to yourself and don’t disclose your intentions to anyone. There is nothing worse than showing your hand before you completed your own investigation. Most often it will be a false alarm, but what if the inevitable termination process has begun. You may have been run over by that yellow bus.
Start learning the basics about employment law. Every employee falls into one or more protected classifications of age, gender, sex, disability, religious belief, national origin and race. If an employer uses these classifications in order make employment decisions, you have a violation of state and federal laws. You can quickly study up on discrimination and retaliation in those areas within ExecuCite.com and at the EEOC.gov. Of course, there are more complex issues to spot, such as whistle blowing state and federal law violations. Just starting researching and you will pick up the basic issue spotting techniques quickly.
Once you have discovered the possible reasons for your termination, create a factual chronology using names, dates and exact statements made during conversations you have had. This chronology will turn into your sworn affidavit. From this sworn affidavit, a demand letter can be created. Your affidavit will form the factual background of the claims. You or your attorney can fill in the legal claims asserted. At the conclusion of your demand letter, you should spell out what you are demanding. Most people demand the following items: (1) severance money; (2) mutual release of claims known or unknown; (3) mutual non-disparagement; (4) mutual confidentiality; (5) a positive letter of reference; (6) agreement not to contest unemployment; (7) agreement that you are not required to mitigate your severance damages by getting new employment; (8) payment made lump sum, in case the employer suddenly gets sold. Obviously, there are more terms to add, but these are the general terms requested during severance.
After the demand letter containing your offer is received, the employer will send a letter back to you or your legal counsel rejecting everything you asserted in your demand. The employer’s role is to deny everything, so do not feel shocked. The employer will then make a counter offer. This first counter offer will set the range of offers between the parties. Further negotiations will seek to find a mid point between the two offers. Each counter offer made can be any round number the party wants to offer. There are no rules that govern this process. You do not have to match the offer made by the other party. However, always remember that your offer amount sends a particular message. If your offer is too high, you are indicating you have a really good case and do not want to settle. Also true is the employer’s very low offer, indicating unwillingness to settle because the legal claims have no merit. I will note that some employers never negotiate with anything more than nuisance value, or $5,000 to $10,000 maximum offer. The presence of an employment attorney representing an employee will have an immediate positive impact on the negotiations.
The severance and general release agreement will often contain a non-compete and non-solicitation agreement. These are called restrictive covenants and usually reflect the fact the employer never had you sign these promises while you were employed. Employees should not agree to sign these covenants contained in severance agreements, because they impair you ability to earn a livelihood. Unless you want to be restricted from doing what you do best. In a worst case situation, the employee should demand an additional premium for having to sit out the next several months of the non-compete period.
The severance negotiation is concluded when the parties sign the agreement. Execution of the agreement can occur through two separate documents, exchanged through mail or facsimile. Just make sure there is a provision that allows for such an execution, otherwise there is no formal ratification. You should hold onto the agreement in your home file for quick reference. Do not communicate with others about the details of your agreement because the employer may find out. Once you breached your agreement by disclosing the settlement, the employer may be entitled to a return of the severance pay.
There are more issues to discuss about severance, but these are the basic concepts for you understand. I will write new articles on this subject in the near future. If you have any questions, please contact my office at (203) 255-4150 or email@example.com.
Mark P. Carey