Severance Agreements: Negotiating With A Goal In Mind

For most people, being offered a severance agreement or package can create a sense of relief, panic or both. Some workers may have been anticipating a layoff and are feeling lucky to get some money to tie them over while they look for a new opportunity. For many others, a layoff or termination often leads to emotional, psychological and financial stresses that make negotiating a severance agreement written in legal jargon a daunting task. In either case, the first step is to take a deep breath and figure out your goals. With some thought, you may discover those goals include more than just money.

Here are some key questions to consider:

Will you need help finding another job?

Unless you already have another job lined up, you may want to secure a positive reference letter, re-characterize your reason for leaving, or even negotiate job training if you want�"or need�"to switch careers. Likewise, your current employer may be willing to provide you with the use of outplacement or career counseling services. Some employers, especially large companies, have pre-negotiated rates with outplacement service firms. These rates may be far better than you would pay if you sought out career services on your own.

Will you have health benefits through your spouse or partner?

If not, you are entitled to continue your existing group health care benefits under the Consolidated Omnibus Budget Reconciliation Act (COBRA) for up to 18 months (or longer under certain circumstances, such as disability). If you choose to extend your group health benefits under COBRA, however, you are responsible for paying the entire cost of the coverage, including the part formerly paid by your employer, plus up to an additional 2% for administrative costs. This can often double or triple the amount you paid for health insurance as an employee. Given the high cost of COBRA, it is likely cheaper to secure health care coverage through one of the marketplace exchanges created under the Affordable Care Act ("ACA"). But be aware that unlike COBRA, ACA coverage is not retroactive, and it can be costly to avoid any gap in coverage. Also, under the new law, your former employer cannot continue to directly pay for your health care coverage after you leave. The bottom line is that you may need to negotiate for extra money to offset your increased health care coverage costs.

Are you currently covered by your employer's group life insurance or disability policies?

If so, you may want to find out if you can convert these to individual policies. While you may be able to find more affordable policies on your own, it may be advisable to bridge the gap between leaving your job and securing new policies. Again, you may want to find out what a disability policy costs for a person.

Do you have stock options?

If so, you may be able to negotiate extra time to exercise vested shares or to accelerate the vesting of unvested options.

Is a bonus part of your compensation plan?

If so, you may be able to negotiate a pro-rated share of your bonus for the year you are terminated or laid-off.

Is there a "non-compete" provision in the severance agreement?

There are generally two aspects to a non-compete provision: trade secret protection (aimed at protecting the company's proprietary information, such as client lists, sales strategies and information about its products) and restrictions on where or for whom you can work after leaving your current employer. With narrow exception (e.g., the sale of a business), non-compete provisions are generally unenforceable in California. That said, while there are legal remedies against employers trying to enforce non-compete agreements in bad faith, the reality is that some prospective employers, often those headquartered out-of-state, are scared off by them, and would rather hire another candidate than risk the possibility of litigation. Accordingly, it can be important to try to eliminate, or at least narrow, such a provision.

Is there a "non-disparagement" clause in the severance agreement?

Often times, the employer includes broad non-disparagement language in the severance agreement, which may prevent you from honestly telling a prospective employer why you left your previous job. Depending on the circumstances, this can make it very difficult, if not impossible, to get another job. If the employer won't budge on narrowing or eliminating that language, you may be better off protecting your right to candidly explain your situation than accepting a few weeks' or months' severance pay and signing away your right to do so.

Do you have any potential legal claims?

If you have any reason to believe you experienced harassment, discrimination or retaliation in the workplace, it is a good idea to consult with an attorney to review the facts of your situation. Many attorneys offer free or moderately-priced initial consultations. An attorney can advise whether you have potential legal claims that may give you leverage in negotiating a more substantial severance package or whether you should agree to take one at all. After all, the severance package offered is typically in exchange for signing a release, which means that you would be waiving the right to bring these types of claims against your employer.

In the end, there is no one-size-fits-all approach to negotiating severance agreements. While it may seem like an overwhelming task at the time, it is well worth assessing your situation and needs before coming to the negotiating table.

Karen received her law degree from the University of San Francisco School of Law. After school, she joined the law firm Bell, Rosenberg & Hughes LLP in Oakland, where she represented individuals, corporations and public entities. Karen later represented employees and unions at the law firm Davis & Reno in San Francisco before starting her own law practice. Prior to starting her law career, Karen worked in Washington, DC, on the legislative staff for Senator Barbara Boxer.

Opinions expressed by the author are not necessarily those of WITI.