Severance-CA.com
This site is about SEVERANCE PAY & SEPARATION AGREEMENTS. Generally, this information isn't as relevant for union members, government employees, minimum wages employees, - sorry. As an attorney practicing on the employee-side, I've received 2,500+ hits to my website/emails inquiring about "severance" and I've managed dozens of client projects negotiating severance pay. It seems even savvy business people have misconceptions about severance pay practices; maybe this site will offer some clarity. However, this is not a substitute for qualified legal counsel. TCW
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The materials and links contained in this site, legal or otherwise, are: general information; a matter of opinion; less relevant for employees outside of California; and/or subject to change. This information cannot serve as legal advice in any particular situation and may well be inaccurate for your situation. Please seek an attorney-client relationship for expert help with your legal matters..
Common Myths & Misconceptions about Severance:
"Severance pay is a gift."
"My employer doesn't pay severance."
"Since they made an offer of severance I can always counter for more,"
"My employer says they never pay more than one week for each year of service."
"My separation agreement has a 21 day review and 7 day revocation clause; it must be fair."
"The release clause of the separation agreement could jeopardize my COBRA and 401(k) account!"
"I can't collect unemployment because I was paid severance, even though I was terminated by my employer "
"I'm quitting, so I can't ask for severance."
"My company says cash is too tight to pay any severance."
When Should the Negotiation Process Start?
Ideally, you should have or take the initiative in negotiating for anything, especially for your separation package. If you can outline your "strategy", set realistic objectives, and choose your coaching partner (if you acquired a partner), you're likely to do much better & feel much better. Once your termination is "in-process" you're playing catch-up with the employer's agenda.
I suspect the first response by employment coaches and attorneys to a negotiation project is likely, "I wish you had called months ago.". Don't get caught watching the corn grow.
Advanced Strategies & Coaches
Experienced practitioners may employ various tactics to improve your negotiating position and protect your legal rights. There are hard lessons learned from years of experience; your employer and its' counsel have this experience, and you very likely don't. You may need some help.
Common Blunders
I don't encourage do-it-yourselfers, I recommend coaching. But, here's a warning about a few of the common mistakes when employees negotiate their own agreements:
- UI Benefits- I've seen several situations where an employee accepts a separation package to later find the employer contests the employee's unemployment insurance benefits filing. It's more difficult to overcome a contest then it is to resolve this question in your separation agreement.
- Tax Implications: Sometimes payments have to be made via W-2, other times Form 1099 gross payments are the appropriate form of payment, or it may call for a little of both. If waiving legal claims in exchange for cash is part of the deal, a pure wage-type net payment doesn't make much sense.
- Non-Cash Components: Letters of reference, COBRA premium reimbursement, forfeited stock options, who owns the laptop...there are dozens of non-cash components to consider. The benefits of taking an holistic approach is a reason for working with an experienced partner.
Paying For A Coach / Attorney
I'm unclear how business coaches work, but there are more than a few plaintiff's employment attorneys that will partner with a current employee to negotiate a separation agreement. Many more attorneys will represent a wrongfully terminated employee seeking a negotiated settlement with their former employer.
If an attorney is going to coach you from behind the scenes, that's often referred to as consultative relationship. Often these will be paid for via a flat fee, or hourly fees with a cap. My scan of the costs suggests: up to $1000 for developing a simple strategy, coaching and reviewing proposed documents, escalating to $2000 for more complex scenarios and sophisticated agreements. If the strategy involves perfecting and presenting legal claims, (such as agency filing and service), perhaps more. Of course, as the cost goes up the tendency is to adopt an arrangement which defers current fees by using a contingency arrangement. A hybrid approach would include some start fee with contingency fees paid from the cash component of a severance package
If there are claims that might only be resolved through litigation, mediation or arbitration then the fee arrangement offered by an attorney is likely to be factored on an entirely different basis.
The Ethics of Severance
Maybe you feel a little queasy about leveraging your employment history to negotiate severance. Maybe you view employees who ask for severance as expecting something for nothing.
Without tipping into a moral argument, companies benefit by paying severance in a number of ways. They avoid legal expense, interference with the business routine that investigations or legal discovery, and they secure confidentiality with respect former employee's opinions. Severance fosters a positive report of employment practices and may address the unintended and isolated incidence of unfairness and unlawful conduct by an employer. It's an opportunity to do the right thing & redress a mistake.
The quality of a company can be measured by what former employees say about it.
Emotional or Analytical?
Some employees impress upon me just how business-like and professional they can be in negotiating for severance. Hello..., emotion is far more persuasive than logic. If you are negotiating your separation it may be much more effective to show the emotional impact and the sadness of the situation than to put on a 'good face". Too many employees will defuse the power of their position by attempting to appear detached, professional and un-emotional.
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A Little Closer to Reality:
It's No Gift! Severance pay is a trade for your future good will, the release of all your potential claims (known and unknown), and may impose special contractual obligations with respect to confidentiality and non-disparagement. In the worst examples, liquidated damages and restrictive covenants may be added to the legal language of the release agreement. Think about it, if it's a gift ...why are you signing a complex legal document?
They Pay Severance Most employers will pay severance. Yes, it does depend on your circumstances and your negotiating leverage. But, the fact that you haven't heard about severance packages paid to former employees may simply mean they keep these arrangements quiet. When companies have stated severance policies they might be supplemented if the situation calls for doing something more. Severance is often paid to employees subject to a lay-off, as well as terminated employees, and also to employees who decide to resign. It all depends on the circumstances.
An Offer Rejected is ..., Once a severance offer is made it's dangerous to expressly reject it. In the worst scenario, an offer rejected is dead - meaning there's no severance offer on the table to accept and your employer isn't required to re-offer..
Review, Revocation & Covenants Once accepted, the 21/7 day review and revocation periods are offered so the employer complies with the waiver of rights and claims requirements of the Age Discrimination in Employment Act. In other words, you're given the review and revocation period in exchange for giving up your rights to later claim you were the victim of age discrimination in employment. There are federal and state laws which can over-ride parts of a separation agreements that are legally void and invalid; non-compete clauses and ERISA retirement plan rights might be examples. That said, it's dangerous to allow new restrictive covenants to be added to a simple separation agreement between your (former) employer and you.
Don't Confuse Severance Pay with Unemployment Insurance Generally speaking, severance pay is irrelevant for unemployment insurance benefits. However, salary continuation is a different thing. Whether you quit or were involuntarily terminated is an important distinction for collecting unemployment insurance benefits. EDD rules are a different matter than severance - don't' get these different subjects confused.
Threatening to Quit Can Be a Good Strategy Some of the largest monetary severance and separation packages I've negotiated have been for employees who have disclosed to their employer they intend to quit. Obviously, an employee contemplating this type of negotiation needs to know just what he/she is doing, the risks, and how they propose to overcome an willingness to negotiate by the employer. This is a often a high risk, high reward scenario.
It's Not Just About Cash Think package, not just cash. Valuable severance packages will contain many non-cash components...which may benefits both parties. How about being able to use your employer's voicemail box for 3 months? Sometimes these small things really matter.
Who Gets Severance Pay?
No hard rules, except maybe in unionized or civil service-type employment relationships. If you are in a low paying job or high turn-over environment your expectations need to be modest. (On the other hand, I've negotiated severance for a retail industry employee that worked for just three days, and I expect other attorneys have similar stories.)
There are many situations that just won't realistically work for any negotiated severance pay opportunity. But, if you are a long service employee, have fairness issues and/or legitimate claims about your company's employment practices, are in management, are highly compensated, have heard about former co-workers receiving severance, etc. etc., there may be an open opportunity to seek a meaningful severance package.
How Much Severance Pay?
A fascinating subject. An employer in a tight industry, (retail maybe), may suggest one week of severance for each year of employment. An employer in a booming industry, (hi-tech maybe), may suggest one month of severance for each year of service. For a short-term employee, the demand is more likely to be about the transition period in attempting to replace the lost employment. If a current (or former) employee's legal claims and economic leverage are high, these metrics may simply go out the window. There aren't hard and fast rules here, and the value of the severance package is more about how effectively the negotiations occurred.
Consider the differences in these approaches to pegging a severance benefit for an employee making $50,000 annually with 3 years of service who realistically expects to suffer 5 months unemployed to replace his or her current job in the local economy:
A week per year = $ 2,885 A month per year = $ 12,500 A transition benefit = $ 20,233
Additionally, there may be "severance pay plans" or law & statutes in the background which mandate a certain minimum severance. ERISA severance pay plans and WARN ACT lay-off situations are such examples, but, again, these may just set the minimums.
Too Much Severance Pay?
For some employees, severance pay can be so large as to trigger tax penalties, or be paid in deferred installments so as to trigger tax penalties. Suffice to say, if you are negotiating a big dollar, complex severance package you should be partnered with a experienced attorney.
Too Little Severance Pay?
Be realistic, if a few days of pay, (or paying you your last week without working the days), seems like a fair deal under the circumstances - then that's probably about right. Have I seen situations where the employer won't pay one dime of severance? - Yes.
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