Checklist for Negotiating Severance Agreements

Our firm specializes in negotiating severance agreements for recently terminated employees.  We’ve negotiated severance agreements all over the country from our offices in New York City and Cleveland.  Since we formed our firm, we have improved severance for over 93% of our clients.  You can read our reviews on Google, Avvo, and Yelp.

When we talk to our clients about severance, we generally go through the below checklist.  We don’t always discuss every bullet point with every person, but this should provide a general overview. 

·         Is it Fair?  Here’s the basic transaction:  in exchange for severance (money) the company is getting you to promise not to sue them (and sometimes a bit more).  Are you getting fair value for your promise?  That depends on what your promise is worth – in dollars and cents.  It also depends on common sense.  How much did you give your company in blood, sweat and tears?  Is that being valued (it does not have to be – but it should)?   We work with clients to help them better understand if their offer is fair and help them work towards a more equitable deal whenever possible.

·         Reason for Termination.  This is a big one.  If you believe that the company terminated your employment for an illegal reason (e.g. discrimination, retaliation, etc.), the claims that the company is asking you to release can be quite valuable.

·         Potential Claims.  Like your reason for termination, if your employer violated the law, you have viable claims against the country.  We discuss whether each employee was properly compensated for all time worked, and also explore whether the employee has viable claims under OSHA or Dodd-Frank.

·         Confidentiality.  Map out what is and what is not confidential.  While a company certainly wants to keep its trade secrets (and secrets generally) private, you need to be free to describe your work to potential employers, etc.  Plus there may be certain aspects about your employment that you want to be kept confidential.

·         References.  Severance is about your future, so working out how your references are going to be handled is critical.  A neutral reference usually covers this, but, sometimes, you can iron out a reference letter from your former employer which you can then present to potential employers.  These are fairly rare, but that does not mean you should not look into it in certain circumstances.  Here is an article on neutral references.

·         Personnel File.  You may want an opportunity to review and/or copy your personnel file for your records.  A personnel file would typically contain information about your pay, benefits, and performance.  Even if you cannot get access to your entire file, there may be some information about your employment (salary, benefits, accrued vacation, etc.) that you may want to know.  Think through what information you want.

·         Return/Retention of Company Property.  Most severance agreements require employees to return all company property.  But what if you’ve grown attached to your company-issued laptop or smartphone?  Do you have important personal information on your work e-mail account?  Think through what you might want to keep.

·         Restrictive Covenants.  As noted above, severance is about your future.  Restrictive covenants (non-competes, non-solicits, etc.) can have a major impact on what you are allowed to do after your employment has ended.  If you are subject to a restrictive covenant, your severance agreement may be a good place to revisit the issue.  But you have to be delicate when you address this issue – nothing says “I intend to compete with the company” quite like saying “I want to talk about my non-compete agreement.”

·         Other Pay.  Don’t leave any money on the table.  Make sure all of your earned wages, commissions, vacations, sick leave, etc. have been paid.  Figure out your pension, 401K and benefits.  Make sure that you get everything that you’ve earned.

·         Stock Options.   When are your stock options exerciseable?  Separation from the company may accelerate the time.   Also, if you have acquired stock, majority shareholders may owe you a fiduciary duty to disclose material info about the company stock. You may be able to force the company to repurchase the stock.

·         Future Relations.  Can the company hire you back?  Can you be a consultant, or independent contractor for the company?  Does getting another job (with the company or another company) impact your severance? 

·         Taxes.  Talk to an Accountant.  Figure out how your severance is going to be taxed.    Typically, severance payments are taxed as wages, but not always.  Clever accountants are great at coming up with creative solutions to tax issues related to severance.

If you think you might want to talk to a lawyer about negotiating your severance, please contact us – this is what we do.