Tips for Negotiating Severance Agreements

Previously we posted some information about severance agreements. A severance agreement typically refers to an offer of money, or other consideration by the employer to the employee, in exchange for employee’s agreement to release the employer from liability along with other conditions.

An employee is free to accept a severance offer, reject it, or try to negotiate more favorable terms—either on his or her own or with the assistance of an attorney. Severance offers can be withdrawn if not accepted and typically expire after a certain date. Assuming the employee decides to negotiate, here are some additional monetary and non-monetary terms to consider:

1. Mutual release of claims. Most severance agreements specify that, in exchange for certain severance benefits, the employee agrees to waive and release the employer from any and all legal claims, whether known or unknown to the employee. The employee may want to ask for a “mutual” release, so that the employer also releases the employee from any and all legal claims. However, some employers refuse to do so because they are unwilling to waive potential claims that are unknown to the employer.
2. Mutual non-disparagement. Severance agreements often include language stating that the employee will not defame or disparage the employer or its business. In return, an employee may request that the employer instruct management to refrain from disparaging the employee to potential employers or third parties, or alternatively, limit the information it provides about the employee to include the dates of employment, the position held, and the employee’s salary.
3. The agreement may specify that any dispute between the employer and employee about the severance agreement must be resolved through arbitration, rather than in court. Arbitration can be very costly, and the parties waive their right to trial by jury. Therefore, the employee should consider asking the employer, which often has greater resources, to pay all arbitration costs, including the arbitrator’s fees—regardless of who initiates the arbitration or who is determined to be the prevailing party. Also, the location of the arbitration should be geographically close to the employee’s residence.
4. Employees may want to know if the employer will provide a “good reference.” Employers are often reluctant to do so for various reasons. Therefore, the employee may consider asking the employer to refrain from disparaging the employee to third parties, or to limit what information it will provide to potential employers; the employee can always ask a former supervisor or colleague to be a job reference, which need not be included in the severance agreement itself.
5. Additional Severance. Employees generally want to be paid as much severance as possible to ease the transition to new employment. If an employer is unwilling to offer more severance, the employee may consider some alternatives, such as outplacement services or reimbursement for health insurance premiums under COBRA. Some employers may be willing to extend the employee’s last day of employment— thus allowing the employee time to search for new employment, to help transition his or her responsibilities to others, and to continue receiving salary and other benefits until the employment relationship officially terminates.

An employee who is presented with a severance agreement should consult an attorney before making any decisions. The attorney can help the employee identify his or her options in this situation, and discuss the pros and cons of proceeding with each. The attorney can assist the employee in a severance negotiation, either directly with the employer or indirectly by advising the employee “behind the scenes” in a negotiation with the employer.