Severance Packages
You have just been notified that your job is being terminated but the company is offering you a separation or severance agreement. While the news of being terminated is typically very disappointing, you generally should welcome the offer of a separation agreement or severance package. Why? Because unless you have an employment contract with your employer that says otherwise, or unless it is a mass lay off, in Virginia you are generally an employee at will. That means that the employer typically does not owe you anything and can terminate you for any reason at any time without any further compensation. That means the employer owes you nothing more even if you were terminated for no good reason (called “without cause”).
If you are given a separation agreement, here are some basic things to know:
The Standard Contents of a Severance Package
Severance packages are usually a good way for employers to assure themselves of certain protections and guarantee a clean separation from employment. A severance package typically includes the following terms:
- A general release of liability by you the employee (that means a promise by you not to make any claims against the employer or not to file a lawsuit against the employer for any reason or not to recruit anyone else to make a claim or lawsuit);
- A confidentiality provision that requires you to be quiet about the terms of your severance – especially the amount of compensation or the benefits that you are receiving;
- A requirement that you return any and all company property and that you keep any proprietary confidential information (like company finances or customer lists) secret;
- A promise by you, the employee, not to say negative things or speak poorly about the employer after leaving (usually referred to as a “non-disparagement clause”);
- In some cases, you may be asked to not take a job where you are in competition with the company (this is called a “non-compete”) for one to two years and/or you may be asked not to try to hire any of the company’s employees or try to take away any of the company’s customers or clients (called “non-solicitation provisions”);
- Sometimes you might have to agree not to seek any future employment with that employer; and,
- If you are age 40 or over, then the agreement will tell you that you have the right to consult with an attorney plus have 21 days to consider the agreement and 7 days after signing to revoke it. These terms are required in order for you to properly release any age discrimination claim.
In exchange for agreeing to terms like those listed above, you the employee generally might receive in exchange:
- Compensation – either in the form of a lump sum amount or as front pay for a set period of time following the termination of employment;
- Some extension for a period of time of other benefits such as health insurance and life/disability insurance;
- Clarification as to how you and the employer will say the employment ended (such as a “mutual separation” or a “lay off” or a “company restructuring” or a “voluntary resignation”) and also clarification on exactly what information the Company will give out when asked for a reference by your future prospective employers; and,
- A promise by the employer not to say negative things or speak poorly about you the employee (if it goes both ways, it called a “mutual non-disparagement clause”).
What do I need to look out for?
- If you are getting paid a lump-sum settlement – it often will say subject to the necessary tax withholding. Watch out! Unless you specify a different withholding rate – you will have taxes taken out as if you were making that lump sum amount every pay period of the year – meaning a large chunk of money towards taxes (larger then necessary or warranted) will unexpectedly come out of that lump sum payment.
- Be careful about waiving your right to claim or seek to claim unemployment – unless you are getting paid future payments for a period of time (during which time you would not be eligible for unemployment), the employer cannot make you waive this claim.
- If it is a mass lay-off then other rules apply under the WARN act – too detailed to discuss here.
- If you know that other employees who previously were terminated or also being terminated received or are receiving a lot more money in severance than you – see below on trying to negotiate.
Can or should I negotiate?
Whether you have any room to negotiate depends on a variety of factors:
- If the employer has paid the exact same amount in severance over time (for example one or two weeks for every year of employment), you typically will have little room to negotiate because the employer wants to (and should) be consistent with all employees.
- If you are being terminated or laid off for what may be an illegal or discriminatory reason, then you may have some leverage to negotiate a better pay out since you could be releasing claims that have some value. In such an event you definitely want to consult with an attorney to find out if you have any valid leverage to negotiate a better deal.
- If there are terms in the severance agreement that you are offered that are simply unfair, then you should try to negotiate the removal of those terms.
- If the severance agreement is silent on how you and the employer are going to mutually characterize the separation or what references the employer plans to give out, then you should negotiate those items.
- Other items that might be negotiable include:
- a continuation of health benefits for a short period of time, and
- possibly a letter of recommendation (especially if your termination is not due to poor performance).
Before you sign a severance agreement, do your best to understand the terms and ensure that you are being offered fair and reasonable severance. If there is a non-compete provision, you may want to seek legal counsel to ensure it is not overly broad and does not overly restrict you in your search for new employment. A general release can sometimes be overly broad and may severely limit your ability to bring a lawsuit for a legitimate legal claim against another company simply because they are somehow affiliated with your employer. A confidentiality provision may be so strict it hinders your ability to get financial advice from your accountant or tax attorney. In addition, the severance agreement may contain terms that are simply not enforceable. You should make sure you know what rights cannot be waived, regardless of what the severance contract says.
A qualified Virginia employment lawyer can help you navigate the terms of the severance agreement and identify any areas of concern or whether negotiation of new terms is reasonable. At Quinn Law Centers, principal Colleen Quinn has thirty years of experience helping employees negotiate severance packages. Please contact our office with any further inquiries about these services.