What is severance, anyway? And who gets it? And how much?

Many of our clients call us for the same reason:  something is wrong at work, and they need to plan their next step. 

Sometimes our clients were just fired—maybe for a bad reason, maybe for a good reason, maybe for no reason at all.  Other times our clients have not been fired yet, but the writing is on the wall.  Still other times everything is great at work, but a promising new opportunity has come along, and our client needs to figure out how to put her old job behind her.

In any of these circumstances, one of our first questions is often: "Do you want us to try to negotiate a severance?" 

A "severance" is what lawyers call it when an employer makes a final payment to an employee, above and beyond the final paycheck.   A severance can be as small as a week or two of salary, or as large as the cash value of an entire company.   But no matter how much good feeling exists between you and your former employer, if they are paying you a severance, it's because they want something from you.

Typically what an employer wants is to be sure that the departing employee won't ever show up again, asking for more money.  This is why many employers demand that terminated employees sign a so-called severance agreement or separation agreement.  And let us pause here to say:  It is almost never a good idea to sign a severance agreement you do not fully understand; and it is almost never a good idea to sign a severance agreement without at least the opportunity to consult with an attorney.

The terms of severance agreements vary widely, but usually their most important provision is a release or waiver.  See below for links to articles explaining common severance agreement provisions.  The employer pays the employee some money; and the employee signs away any claim to ever getting any more money from the employer.

So how much severance should an employee get?  There is no simple rule, but if you have something of value that your company wants, they should pay you for it.  Here are some common examples of things you might have that your company should pay you for:

A claim to unpaid wages.  Say, for example, you were paid to work eight hours a day, but your company expected you work through your lunch break.  You might have a claim to the wages you were not paid for all those lunch hours you worked.   If your company wants you to release that claim, you could demand a severance.

  • Good relationships with clients or customers.  Say, for example, you worked as an accountant, and your former employer wanted to make sure that you did not compete for their clients by opening up your own accountancy on the other side of the street.  If they ask you to sign a non-compete, you could demand a severance.
  • Know-how, trade secrets and intellectual property.  Say, for example, you worked at a start-up and know everything there is to know about how to write the code for the next big thing on the Internet.  Your company might as you to sign a nondisclosure agreement, or NDA, so ensure you don't share what you know.  You could demand a severance.
  • Stock or shares or equity in the company.  Say you were a part-owner or a shareholder in the company that you are leaving.  Even if the company is worth nothing today, the other owners might want you to sign a document giving up your claims to the company.  You could demand a severance.
  • Legal claims against the company.  Say, for example, your boss fired you while you were on medical leave, or stopped giving you raises when he learned about your faith or your family situation, or gave you less overtime when you did not return his "flirting," or expected you to work in unsafe conditions because you are not a U.S. citizen.   You might have a claim against your former employer.  If your employer asks you to waive your claims, you could demand a severance.

In future blog posts, we will discuss these different situations, and some common ways they impact our clients' ability to negotiate severances.  But if something is wrong at work, and you need to plan for your next step, Granovsky & Sundaresh is here to help.  Feel free to call or e-mail us any time.

Explain My Severance - Part 1:  The Release

Explain My Severance - Part 2:  The Neutral Reference

Explain My Severance - Part 3:  Non-Disparagement Clause

Explain My Severance - Part 4:  Non-Admission Clause

Explain My Severance - Part 5:  No Re-Employment Clause

Explain My Severance - Part 6:  No Consideration Absent Execution