Getting fired or laid off can be a stressful and challenging time. Many employees are offered severance packages in exchange for signing away their rights to sue the company or file a claim. Understanding severance agreements, wrongful termination, and your rights as an employee is crucial before accepting a severance offer. This article will provide key information and tips on maximizing severance, qualifying for unemployment, and knowing when you may have a wrongful termination case worth pursuing.
Severance pay and severance packages are commonly offered to employees who are laid off or terminated without cause. Severance provides income and benefits continuation during the transition period of unemployment. Though not required by law, many employers voluntarily provide severance to terminated employees. Negotiating a better severance agreement can provide more security after job loss.
What Is a Severance Package?
A severance package is a set of benefits an employer voluntarily provides to an employee upon termination. There is generally no legal requirement for companies to provide severance to terminated employees. Severance packages are offered at the employer’s discretion, often as a gesture of goodwill after letting an employee go.
Common components of a severance package include:
- Severance pay: Lump sum payment based on years of service and salary. A typical formula is 1-2 week’s pay for each year worked.
- Extended benefits: Providing health insurance and other benefits for a set time period after termination.
- Career transition services: Outplacement services like resume writing and interview coaching.
- Equity vesting: Allowing some stock options or equity awards to continue vesting during the severance period.
- Bonus payment: Full or prorated payment of annual bonus.
The goal of severance is to provide a financial bridge and assistance for the terminated employee during a job transition. Severance packages are generally only offered for no-cause terminations, not for dismissals due to performance issues or misconduct.
Do All Employers Offer Severance Packages?
No, severance pay is discretionary. Most larger companies have severance policies, but smaller businesses may not. Offering severance is not required by federal or state employment laws, unless an employment contract states it. However, employers should follow their own written severance pay policies consistently.
The Benefits of Accepting a Severance Package
A severance package is a set of benefits an employer voluntarily provides to an employee upon termination. There is generally no legal requirement for companies to provide severance to terminated employees. Severance packages are offered at the employer’s discretion, often as a gesture of goodwill after letting an employee go.
Common components of a severance package include:
- Severance pay: Lump sum payment based on years of service and salary. A typical formula is 1-2 week’s pay for each year worked.
- Extended benefits: Providing health insurance and other benefits for a set time period after termination.
- Career transition services: Outplacement services like resume writing and interview coaching.
- Equity vesting: Allowing some stock options or equity awards to continue vesting during the severance period.
- Bonus payment: Full or prorated payment of annual bonus.
The goal of severance is to provide a financial bridge and assistance for the terminated employee during a job transition. Severance packages are generally only offered for no-cause terminations, not for dismissals due to performance issues or misconduct.
How Severance Packages Are Determined
There is no standard formula for calculating severance packages. How much severance an employee receives depends on several factors:
- Company policy: Larger companies often have set guidelines on severance based on tenure and salary levels. Smaller firms may determine severance on a case-by-case basis.
- Negotiation: More senior employees often have greater leverage to negotiate the terms of their exit package.
- State laws: Some states require minimum severance pay standards. For example, New Jersey requires 1 week of pay for each year worked.
- Employment agreements: Contracts sometimes outline severance provisions or requirements.
- Past practice: How a company handled prior terminations may dictate consistency for future severance offers.
While there are no universal standards, typical severance amounts often range from 2 weeks pay up to 1-2 months per year worked. Some general guidelines on common severance packages:
- 1 week’s pay per year worked: This is on the lower end of typical severance amounts.
- 1 month’s pay per year worked: This is an average or standard severance package.
- 2 weeks’ pay per year worked: This is relatively generous severance.
- Capped at 6 months to 1 year of pay: Most severance packages are capped at a half year to full year of pay, regardless of tenure.
The best source of information for how much severance an employer may offer is their past practice with other employees.
Should You Sign a Severance Agreement?
Severance agreements often require signing a waiver forfeiting your right to sue the company for wrongful termination, discrimination, harassment, or other employment claims in exchange for the severance package.
Review severance agreements carefully before signing. Consult an attorney to understand the claims you are waiving and whether signing is your best option. Also consider:
- Were you pressured to resign or terminated without justification? This could indicate wrongful termination.
- Do you have valid claims against the employer for discrimination, harassment, wage violations, etc?
- Is the severance payment adequate compensation for giving up your right to sue?
While signing away your right to sue may still make sense to avoid prolonged litigation, understand what you are forfeiting in the agreement.
Can You Get Unemployment Benefits if You Accept Severance?
Yes, you can typically still collect unemployment benefits after accepting a severance package, since unemployment eligibility depends on how the job ended. Receiving severance pay does not disqualify you from unemployment.
Be sure to contact your state unemployment office to file a claim soon after job termination, regardless of any severance you receive.
How to Negotiate a Better Severance
Severance offers are usually presented as take-it-or-leave-it, but that does not mean there is no opportunity for negotiation. Here are some tips to improve your severance package:
- Ask for time. Request 24-48 hours to review the agreement and think through the offer. This also gives you time to consult an attorney.
- Know your leverage. Factors like strong performance, long tenure, or niche skills can strengthen your negotiating position. Research industry norms as well.
- Consider asking for: More severance pay, extended benefits, flexible vesting schedules, forgiveness of repayment agreements, positive reference letters, or modified restrictive covenants.
- Probe on comparables. Ask what severance was provided to other employees at your level. Cite precedent and fairness as justification.
- Paint a picture. Explain how the enhanced severance helps the transition and provides goodwill from you.
- Be reasonable. Keep requests focused on a few key areas rather than overreaching.
- Get it in writing. Any negotiated terms should be added to the agreement before signing. Verbal assurances are not sufficient.
With preparation and strategic negotiation, you can often improve an initial severance offer. The worst they can do is say no to your request.
What is Wrongful Termination?
Wrongful termination is when an employer fires an employee in violation of the law, or in breach of an employment contract or policy. Some examples of potential wrongful termination include:
- Discrimination: Firing someone illegally based on characteristics like age, race, gender, religion or disability.
- Retaliation: Terminating employment for reasons like filing a harassment complaint, whistleblowing, taking family leave, or union organizing.
- Breach of contract: Violating a written employment agreement, such as terminating without required notice or without cause when contract states only for-cause firing is permitted.
- Implied contract violation: Deviating from promises of job security or procedures outlined in employment manuals and policies.
- Refusing to commit illegal act: Firing an employee for refusing to carry out an unlawful request.
- Public policy violation: Dismissing a worker for engaging in an activity specifically protected by law, such as taking leave or collectively organizing.
Most employment in the United States is considered “at will” meaning employers can terminate for any reason as long as it is not illegally discriminatory or retaliatory. However, wrongful termination claims arise when employers violate legal protections, contractual obligations, or public policy.
Can You Sue for Wrongful Termination?
There are valid reasons to sue an employer for wrongful termination if your rights as an employee were violated. Damages can include lost wages, emotional distress, attorney’s fees, and punitive damages.
However, workers fired for “no cause” have limited recourse. Most employment is “at-will” allowing employers to terminate without justification. Lawsuits are complicated – consult an attorney to determine if you have a case before declining a severance offer.
Can You Sue After Signing a Severance Agreement?
Many severance agreements contain clauses requiring the employee to waive their right to future legal action against the employer. This aims to prevent lawsuits over the termination. However, there are certain scenarios where an employee may still be able to sue after signing a severance:
- If the release of claims was obtained under duress or coercion, it may be invalidated. Signing under threat or misrepresentation could void the agreement.
- The severance agreement may expressly carve out certain claims from the release. For example, allowing age discrimination charges to still be filed with the EEOC.
- If the severance itself breaches employment standards laws regarding minimum compensation or benefits owed, those clauses could be challenged in court.
- Any claims arising after the severance agreement is signed are not impacted by the release. For example, if the employer later defames the former employee.
- If there areSpawn curable breaches of the severance agreement itself, legal action may be taken to enforce the terms of the contract.
Additionally, severance agreements cannot waive someone’s future rights. So claims based on events occurring after signing the agreement are not barred. Overall, while signing a severance agreement limits legal recourse, it does not eliminate the ability to sue entirely in all cases.
Seeking Legal Counsel
Navigating severance negotiations and potential wrongful termination claims is complex. Consulting qualified legal counsel is highly recommended before signing any binding agreements or taking legal action against an employer. Key reasons to seek legal help:
- Review severance agreement – Have an attorney scrutinize the agreement to identify any concerning clauses, omissions, or opportunities to negotiate improvements. They will ensure you understand what is being forfeited before signing.
- Assess wrongful termination exposure – An employment lawyer can objectively evaluate the events of your termination and determine if there are grounds for wrongful termination based on discrimination, retaliation, contract violations or other unlawful conduct.
- Understand claims and risks – An attorney will explain your options, the types of relief available (usually financial damages), and the risks of litigation. They can provide a realistic outlook.
- Navigate the legal process – Employment attorneys know how to successfully file administrative charges, complaints, motions, and other court actions. They can guide you through the various required procedures.
The law contains many protections for employees, but also limitations and risks. Experienced counsel helps maximize the potential for a favorable outcome.
Key Takeaways: Navigating Your Severance and Wrongful Termination
If faced with termination and a severance offer, keep these key tips in mind:
- Review the severance agreement terms thoroughly before signing. Understand what you are waiving and compromising.
- Consider negotiating a severance for enhancements like more pay, extended benefits, or modified restrictions. But avoid overreach.
- Consult an employment attorney to assess if you have grounds for a wrongful termination claim before signing away your rights.
- If you have valid wrongful termination grounds, weigh the severance benefits against legal options and risks.
- The severance process and wrongful termination lawsuits are complex. Experienced legal help is highly recommended.
- If your rights were clearly violated, then pursuing a wrongful termination claim may be the better option despite risks. Or file a claim while also accepting severance.
- If severance provides adequate assistance and no strong legal claims exist, then signing the agreement is often advisable.
Getting fired brings difficult choices. Learn about severance packages, wrongful termination claims, unemployment benefits, and steps to protect yourself in advance. With the right information, you can make the best decisions during this challenging transition.
