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What Should I Do if I Receive a Severance Offer?

Understanding How Severance Offers Work

Finding out that you are being let go is never a fun experience. Even if you were not necessarily happy at your current job, suddenly losing income can be a frightening prospect, and you may not be sure how quickly you can find a new position elsewhere. A severance package can help bridge that gap, providing you a final monetary payout.

Businesses have various reasons for issuing severance packages to outgoing employees, and it is important you understand why you are being offered one and what conditions are tied to accepting it. Many do not realize they may have leverage to negotiate a severance offer or give up key rights as employees by accepting one. Below, we cover the basics of severance and what steps you should take if you are offered one.

Who Gets a Severance Offer?

Generally, employers are not obligated to offer a severance package to employees they are laying off or dismissing. That means that even if you are laid off through no fault of your own, you are not automatically entitled to any sort of payout.

Your employer may be obligated to give you a severance under certain, specific circumstances, however. Many unions have requirements for severance agreements, including parameters on the size of a package, as part of their operating agreements with employers. If you are a salaried employee or a high-level executive, a severance package may be included in your original employment agreement.

Still, there are circumstances in which an employer might offer you a severance package despite not being obligated to offer one. Some employers have an internal policy of offering severance packages to employees who have given many years of service to the company. Others may attempt to use the financial incentive of a severance package to compel you to sign an agreement that restricts your rights going forward.

Severance Package Versus Severance Agreement

Before going further, it is important to understand the difference between a “severance package” and a “severance agreement.” A severance package refers to the monetary incentives a departing employee is given if a severance agreement is signed.

The severance agreement is a legal contract that almost certainly includes some restrictions to your abilities and rights going forward. In exchange for giving up those rights, you are being offered the financial incentive of the severance package.

You might be wondering: Is that legal? Yes, to a degree, if you sign it voluntarily. Severance agreements are an acceptable legal contract so long as the terms within are legally enforceable – some are, and some may not be, which we will discuss more below. California courts have historically upheld the validity of many provisions of a severance agreement, even if the terms greatly favored the employer.

In other words, you need to very seriously consider the pros and cons of signing a severance agreement. You should never immediately accept a severance offer and sign an agreement.

What Is Included in Your Severance Agreement?

A severance agreement seeks to protect the interests of the business you are leaving as much as feasibly possible. As such, it will make every effort to limit any damage the company expects you might be able to inflict.

Some common features of a severance agreement include:

  • Relinquishing the ability to file or participate in a lawsuit against the company in the future on any grounds, including wrongful termination, harassment, or discrimination
  • Mandating you do not speak negatively about the company (formally, “non-disparagement”)
  • Mandating you do not disclose the terms of the severance agreement
  • Mandating you do not disclose trade secrets to others, including future employers

There are also some features unscrupulous employers may attempt to include in a severance agreement but are not legally enforceable. These can include provisions suggesting you lie if called to testify in court, preventing you from reporting crimes, or mandating a too-broad non-compete clause.

Additionally, an employer cannot include any measures that restrict your ability to seek owed wages. In fact, an employer cannot delay the lawful paying of owed wages as a result of a severance negotiation. If you encounter any of these unlawful terms, you should refuse to sign and immediately get in touch with an employment attorney.

As you can see, you are potentially giving up a significant number of rights in signing a severance agreement. That means the financial package must be sufficiently substantial – and your circumstances acceptable – for signing the agreement to be worth it.

How to Consider Handling an Offer

Evaluate the Size of Your Severance Package

While California law does not mandate severance packages be offered, employers often use universal guidelines when calculating the monetary amount. At the bare minimum, most employers will offer at least one week’s pay for every year the employee has worked at a company. For example, if you worked at a company for 3 years and earned an average of $1,000 each week, you might be offered a package of $3,000.

Some more generous employers will offer two weeks’ pay per every year worked or even one month’s pay per every year worked. Your employment or union agreement might also mandate a specific formula be used, or, barring that, an employer might just throw out a random number they think reflects your contributions to the company.

Consider Negotiating Your Severance Package

This depends on your situation. If you are receiving a severance offer as a result of a mandate in your employment or union agreement, you likely do not have much or any room to negotiate the monetary value of the package. You should, however, confirm that any conditions of the severance agreement are consistent with what your employment or union agreement outlines.

Whether you should attempt to negotiate your severance package largely depends on why your employer is offering it, especially when they are otherwise not legally obligated to do so. Remember: You must sign the severance agreement to get the severance package, and the agreement will require giving up some of your rights. Your employer is looking out for the company, not you, so you need to be your own advocate.

If you believe you are being fired or laid off as a result of poor work performance and no other factor, you probably do not have a lot of leverage to negotiate the severance package. In this case, your employer is likely offering one as a kindness, and even if its payout is on the lower end of the spectrum, it may be in your best interest to accept the money if you find the agreement’s terms acceptable.

If you have also only been at a company for a short amount of time – say, a year or less – you may not necessarily have much room to negotiate monetary terms. Again, the value of the severance package is in many cases tied to how long you worked for the company, so if your tenure was brief, any severance value is likely to be proportionally limited.

There are situations where you should consider negotiating the value of a severance offer, including:

  • You have worked at the company for several years or more and have generally been considered a good employee, yet the severance package is low in value
  • You have some grievance with the company and are not satisfied with the value of the package versus the rights you are relinquishing in the corresponding severance agreement
  • You are satisfied with the value of the severance package but not some of the terms of the severance agreement

Each of these are valid concerns that might warrant some negotiation with your employer. If negotiating your severance package amount, be sure to emphasize the value you brought to the company, your years of faithful service, and the universal methodologies other employers use to calculate more generous payouts. If you are negotiating specific terms on your severance agreement, you may need to be specific in what you are and are not comfortable with. Be aware that employers are less likely to strike these terms unless they are shown to be unlawful or not legally enforceable.

If you have a specific grievance or feel your dismissal is unfair, you may want to speak to an employment lawyer to consider your options. They can help assess whether it might make more sense to accept a severance package or if you have enough of a case to pursue alternative legal action.

Consider Any Grievances You Have with the Company You Are Exiting

When losing your job, it can be tempting to accept the immediate money associated with a severance offer, especially if you do not have other employment opportunities lined up. Signing a severance agreement binds you to the legally enforceable terms within and typically precludes you from pursuing legal action against a company, even if it is on legitimate grounds.

If you believe you were wrongfully terminated or that you have some other legal dispute against your company, including on the grounds of harassment or discrimination, do not sign the severance agreement, no matter how attractive the severance package. You should instead contact an experienced employment lawyer, like those at K2 Employment Law Group, to evaluate the circumstances of your dispute.

There is a possibility your employer is attempting to coax you into relinquishing your rights to avoid a lawsuit they suspect they will lose. To them, paying out a great deal of money in a severance package is easier and cheaper than defending themselves in court. Our team at K2 Employment Law Group can assess the facts of your case as well as the evidence available and advise you on whether you should consider legal action or if taking the severance payout makes sense. If you have a strong case, it may be more advantageous for you to pursue an even greater monetary settlement than what your employer is offering you.

No matter your situation, always make sure you understand the terms of the severance agreement before you sign one. Seek the advice of legal counsel if you are confused or uneasy about any of the terms.

Call (800) 590-7674 or contact us online to see how we can help you navigate employment disputes and severance agreements.