How to Negotiate a Successful Severance Package

Emotions can run high when an employee is laid off from a job. Many employees want to simply pack up their personal stuff, leave and begin moving on with their lives. However, before they can begin moving on there are certain things that need to be taken care of including negotiating a severance package.
A severance package refers to the benefits that the employer will pay an employee who has been laid off from the business. Unless there is a company policy or an individual employment contract that entitles an employee to specific severance benefits, an employer is typically not required to provide any specific benefits to employees when they are laid off unless they are in a state which requires severance pay for employees who are laid off in large numbers or because of the closing of a business. 
Severance Pay May Be in the Employer’s Best Interest
It is often in the employer’s best interest to provide a severance package.   Employees who are laid off are often emotionally hurt and may no longer be loyal to their employers. A severance package may not take the entire sting out of a lay off but, as time passes, it may help the employee remain loyal to the business and not share things that the employer would rather remain within the company. Further, it can lessen the possibility of lawsuits, particularly if severance packages were provided to other employees of the business in the past.
Items to Negotiate
Knowing that an employer may be motivated or in some cases required to provide a severance package is important to an employee who is trying to negotiate a successful severance package. It is also important for the employee to know the possible things that can be included in a severance package:
  • Money: This is at the top of most employees’ lists of things to negotiate in a severance package. Most often, employees are provided with their typical paychecks (based on their salary or hourly wage) for a certain amount of time.
  • Insurance: While laid off employees are entitled to COBRA benefits to extend their health care insurance, COBRA is expensive. Many employees are concerned about having their employer continue to pay its share of the health insurance premiums for a definite amount of time following termination.
  • Employment Services: This section of a severance package may be one where the employer is most willing to negotiate and one that can provide the employee with the most long term benefits. Employers may be willing to pay for job placement assistance, job coaching or professional resume writing, for example.
  • Unpaid Vacation Time: Some states require employers who lay off employees for reasons other than just cause to pay out the employees unused vacation time benefits. Many employers in states that do not require the payment are willing to pay employee’s unused vacation time, as well. So, employees should be sure to have an accurate accounting of their unused vacation time and make sure that it is reflected in the severance agreement.
  • Stock Options: Many times employees only have 90 days after they become disassociated with their employer to exercise their stock options. Employees may be hesitant to take the risk within 90 days either because they are still unemployed or because of current market conditions. Employees may be able to negotiate to extend the typical 90 day limit to exercise their options, however.
How the items described above should be included in an individual package depends on the priorities of the employee who is receiving the package. Employers find it important to remain consistent on the financial aspects of severance agreements. However, that should not dissuade employees from negotiating and making the best case possible for inclusion of the things most important to them in a severance package.

The information on this page is meant to provide a general overview of the law. The laws in your state and/or city may deviate significantly from those described here. If you have specific questions related to your situation you should speak with a local attorney.

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