Understanding How Exit Packages Can Restrict Your Rights
Numerous companies have been forced to lay off a great deal of their work force as COVID-19 continues to adversely impact the world’s economy. Learning you are being laid off is never a fun experience, especially if the exit has nothing to do with your work performance.
Depending on your position with the company, the amount of time you worked there, and the employment agreement you signed when originally hired, your company may be obligated to offer you a severance package. They may also offer severance, even if they are not required to, if they wish to compel you to sign an exit agreement.
Many falsely believe you are required to accept a severance package. Not only is this not true, there are many legitimate reasons to decline a package, and you should by no means accept the first offer you are given. Below, we discuss why you should always counter an initial severance offer and what other common pitfalls you should avoid.
The Danger of Immediately Accepting a Severance Package
If you are losing your job, it may be tempting to quickly accept a severance package that includes significant financial payouts, which can include the equivalent of several weeks of pay or more in addition to other lucrative incentives. However, remember that your company is not offering you this package out of the kindness of their hearts, even if you have a good relationship with your boss. They are attempting to incentivize you into signing an exit agreement, which waives a number of your rights as an employee.
A boilerplate exit agreement will typically prohibit you from pursuing legal action against the company in the future. You will not be permitted to pursue a wrongful termination suit or any other claims against the company, including those involving retaliation, unpaid wages, or sexual harassment. You also will not be able to negotiate references (positive or negative) or formally resign on your own terms.
You should always carefully review the terms of an exit agreement contingent to receiving severance benefits. Even better, you should hire an employment lawyer to review the contract and flag any potentially problematic elements. Do not assume an employer is acting in your best interest.
Companies will sometimes float attractive severance packages to employees they consider “problematic,” or ones they know have legally valid claims they could choose to pursue. As we mentioned above, some high-level or long-serving employees are entitled to severance as a matter of corporate policy, but if you are receiving a higher-than-expected severance or were not expecting to be offered severance at all, it is important to consider why.
Negotiating Your Severance
If you are being offered severance, the company wants your cooperation, which means you have leverage. Just like you should not accept any initial offer when negotiating a job salary, you should never accept what is initially offered in a severance package.
First, make sure the financial incentives being offered are consistent with industry standards. Some companies will attempt to lowball severance packages, especially if they are experiencing broader financial difficulties.
A standard, ideal employee’s severance package should reflect the equivalent of 4 weeks’ pay for every year worked at the company. For example, if you worked at a company for 3 years, you should aim to get at least the equivalent of 12 weeks of pay. This income can help you manage the transition to new employment. Some companies will try to offer only 2 weeks of pay per year worked, so recognize that this is a lower figure and attempt to negotiate up – it rarely hurts to ask. Executives can and will typically negotiate a substantial lump sum that is often referred to as a “golden parachute.”
Next, consider your position with the company. If you had a positive working experience and have no intention of pursuing legal action against them in the future, you probably only need to focus on getting a fair payout as you seek new employment. If you had a negative working experience or experienced legally actionable abuse, it may be best not to accept a severance package at all.
If you experienced problems in your workplace that may be actionable but are not interested in legally pursuing them, you should still let those experiences guide your negotiation. You may want to attempt to strike elements of the exit agreement you find objectionable, particularly those that indefinitely preclude you from pursuing any legal action. Should they refuse to budge on these points, you can instead try for a better payout or walk away from the negotiation entirely.
Remember, if you plan to pursue any legal action against the company that you are departing from, you should not accept a severance package without reviewing the full details of the exit agreement with a qualified legal professional. If you have legitimate grievances against the company, you also have leverage.
Attorney Marder and the rest of our team at Marder Employment Law can evaluate the circumstances of your leaving the company and help determine what sort of leverage you have in negotiating a better severance deal. We can review the terms of your exit agreement and advise you on how to communicate with your company. Our 25+ years of legal experience can help you get the deal you deserve.
Dial (888) 796-4010 or contact us online to schedule a free consultation.