how to ask for severance pay
Severance pay is the compensation an employer provides to an employee who has been laid off, whose job has been eliminated, who has decided to leave the company through mutual agreement, or who has parted ways with the company for other reasons. In addition to pay, severance packages can include extended benefits, such as health insurance and outplacement assistance, to help an employee secure a new position.
In contrast, when businesses fail to offer severance packages, it can upset staff and create negative public relations. To illustrate, when the Four Seasons closed in 2016, it only offered its displaced employees a total of $500,000. Severance payments for front-of-house staff were as low as $600, regardless of how long the employees were with the company. a move that attracted much criticism.
Do Businesses Have to Offer Severance Pay?
No law requires employers to provide severance pay. However, if the employee's contract stipulates he receives severance pay upon dismissal or if the employee handbook promises severance pay, the company is legally obligated to follow through with those pledges. Additionally, if the company makes a verbal promise to provide an employee with severance pay, it must also uphold that agreement.
Regardless of whether a company offers severance pay, the Fair Labor Standards Act (FLSA) mandates an employer must pay the employee who has been terminated through his last day of work, and the employer must also pay any vacation time the employee has accrued.
Does Severance Pay Affect Unemployment Benefits?
Severance pay can affect unemployment compensation in two distinct ways. If the employer pays the employee severance fee in a lump sum, the employee can apply for unemployment insurance right away as he is no longer on the company's payroll. However, in some cases, companies issue severance pay over a period of several months, and through that process, the employee is still technically on the payroll, even if he does not go to work. As a result, he cannot apply for unemployment. Similarly, if an employee has unused vacation time, he is on the payroll as he uses it.
In other cases, severance pay affects unemployment compensation because of the contracts many people sign when they accept severance pay. In exchange for offering severance packages, some companies make their employees sign statements saying they voluntarily resigned from their posts. These agreements prohibit the employee from claiming unemployment insurance, as it is reserved for people who are dismissed from their jobs involuntarily.
Your Source for Getting A Better Severance Package
Most executives and employees do not want to think about it when they accept a new position, but it is a near certainty that one day they will leave their new employer. Experience tells us that a significant proportion of those who will someday leave will be leaving in less than friendly circumstances.
If you elected not to negotiate your severance package before you took your latest job, you may find yourself asking the question "Is my employer offering me a fair severance package?"
The best time to negotiate a severance package, or "separation agreement" is before you accept that new position. Once you start work, it is too late to raise the specter of things not working out. And once one side decides to part ways with the other, whether it be you or your employer, it is really too late for a friendly discussion.
Any discussion regarding enhancing severance that occurs after the decision to terminate will require both brains and brawn. But severance packages do get sweetened every day. This article addresses some of the considerations to take into account when confronting this matter for yourself.
As an aside, if you happen to be reading this in the course of negotiating a compensation package for a position with new employer, you might be interested in reading my detailed article on the subject at Offer-Letters.com , entitled How to Evaluate an Offer Letter for an Executive Job and Negotiate a Better Deal . If you are high-enough in the corporate hierarchy to be negotiating the details of your compensation package and terms of employment, you should be addressing the terms of a future severance as well.
Assess Your Rights
First, you need to assess your legal rights. Without an attorney, it will be difficult to fully assess all of the grounds you may have to challenge your termination or the severance package you have been offered (or not offered, as the case may be). Nonetheless, you should immediately locate a copy of any offer letter, employee welcome package, employee handbook, e-mail, and other documentation (including stock option grants and plan documents) relating to your original job offer, and any materials relating to the modification of your responsibilities or compensation. It is often helpful to review pay stubs to determine accrued but unused vacation time and your exact salary rate.
In the event you were given an employment contract, your rights will likely, for better or worse, be set forth in that document with some degree of specificity.
Most likely, the materials you collect and review will indicate that your employment is "at-will" -- a legal term which indicates that your employment is at the pleasure of the company and can be terminated for any reason or none at all. While this concept will depend on the law of the state in which you are employed, generally speaking, employment "at-will" means you can be terminated for any or no reason as long as the reason is not an illegal one under the applicable law.
It is possible that the terms of your employment were modified verbally or that a course of prior conduct could indicate a change in your employment relationship. You should think closely about whether your expectations as established by your employer were not met, or whether you were discriminated against or required to work in an inappropriate environment. While ultimately few terminated executives may be able to establish such circumstances, it is not uncommon for hard-charging and successful people to underestimate the impropriety of conduct to which they have been subjected in the performance of their duties. Many such executives attempt to overcome negative circumstances through sheer will and determination. In the event that fails, it helps to consider the situation objectively. On the other hand, it can be equally important to carefully consider, as objectively as possible, any claims of grievance you might have, to determine whether there is a legal basis for complaint. Not all unethical or unpleasant human conduct is actionable in the workplace. An attorney can help you evaluate the merits and value of any potential claims.
In assessing your rights, you are generally trying to determine whether you have 1) written, verbal or other rights that have been expressly violated by the circumstances of your termination or the level of the company's severance offer; 2) a basis for claims which could be settled in connection with a mutually agreeable severance package; and 3) leverage to engage the company in an open-ended negotiation of your severance package.
In negotiating an offer of employment, executives using attorneys for advice nonetheless often conduct the direct negotiations themselves. There are many good reasons for this, the most important being the need to maintain and reinforce the good feelings between the employer and the prospective new employee. The situation is reversed when negotiating for an enhanced severance package. In most cases, it is crucial to hire an attorney to show the employer that you are serious. While hiring an experienced attorney does not automatically achieve this, it is extremely difficult to establish seriousness when handling the matter on your own.
Assuming you are, for now, going it alone, it is crucial to understand that most companies will offer you some severance in return for executing a release of all claims you could bring against the company, its officers, directors and others doing its bidding. To the extent the company offers to pay you anything not required by state or federal law, it is in return for your release. So it is a threshold matter that you not sign any document containing a release of claims. You should strongly consider having any documents proffered for your signature reviewed by an attorney before signing anything in this situation.
From a practical standpoint, the company can breathe a sigh of relief when you sign the release. Until the release is signed, depending upon the company's perception of 1) your ability to allege truthful legal claims and 2) your willingness to pursue them with appropriate counsel, you have some degree of leverage. The amount of leverage may additionally depend on the venue in which you could pursue your claims, court being preferred, arbitration being disfavored. This will depend on your written agreements and prevailing laws.
What to Ask For
The level of obtainable severance benefits is highly dependent upon the status of the employee, the size and condition of the company and the circumstances surrounding the termination of employment. As a result, it is very difficult to summarize what any individual might reasonably ask for in a general purpose article such as this.
With regard to severance pay, we usually think in terms of time -- a certain number of weeks or months of base salary, for starters. One underlying rationale for paying severance pay is the length of the employee's service to the company. Another is the amount of time required to permit the employee to find an equivalent position without suffering economic hardship. At the higher levels of the corporate ladder, these concepts carry less weight than do more broad notions of appropriateness -- usually based on local or industry custom. Some would say that in dealing with a senior executive, the senior executives setting severance are inclined to treat a colleague as they themselves would want to be treated.
As a legal matter, what the company has recently given to similarly-situated terminated employees becomes a standard to which the company can often be held. It is important to consider what you know about what other terminated employees have received, what the stated company "policy" may be and what exceptions have previously been made to any rule.
If bonuses or commissions constitute a significant part of one's compensation, it also makes sense to consider whether arguments exist in favor of seeking some or all of those expectations in a severance package. For example, an executive that closed a major deal that would have led to a commission or bonus at year-end can argue that some or all of the payment be included as part of severance.
Stock option or restricted stock grants deserve significant consideration as well. A careful analysis of how the termination of employment will impact vesting expectations, as well as the remaining time to exercise vested shares, is crucial. It is typical for an employee to have only ninety days or less to exercise vested options after termination. This places the employee in a situation where they may have to take tremendous financial risk to exercise "in the money" options by investing their own money into an illiquid security. Or it may result in potentially valuable options being allowed to expire.
A proper severance package in some cases may more profitably focus on modifications to the stock options or restricted stock rights (such as providing additional time to exercise or accelerated vesting of unvested options) than on cash considerations. Again, this is an area where professional assistance (legal, accounting or both) can be worth its weight in gold.
Other factors worth considering include payment for accrued but unused vacation (mandatory in states like California), renegotiating or eliminating any preexisting non-compete or non-solicitation agreements, agreeing upon a characterization of the termination and providing for pre-agreed employment references, keeping possession of laptop or home office business equipment, timely reimbursement of business expenses, renegotiating or limiting the impact of preexisting confidentiality provisions and the like.
An executive or employee may have additional rights under federal and state "plant closing" laws, where layoffs of a significant number of employees by a company within a period of time trigger automatic rights to severance payments or advance notice of termination. Such "WARN Act" rights are beyond the scope of this article, but warrant the analysis of an attorney where appropriate.
Getting A Better Severance Package
If you find yourself, like so many others, with an unsuitable severance offer from your employer, and no advance written agreement providing otherwise, you start the process with your back against the wall. The company holds most of the practical cards. They can cut you off from your colleagues and can deny you access to your e-mail and rolodex. They have plenty of access to lawyers to prepare release documents and separation agreements and can dangle some much-needed money to entice you to sign their agreements. They can impose arbitrary deadlines for you to decide whether you will accept their severance offer (a tactic limited somewhat by federal law if you are age 40 or over).
From anecdotal experience, it appears that the overwhelming majority of unrepresented employees in this situation simply choose to "take what the company offers." It is the path of least resistance in an often emotional and difficult time. For those who choose to negotiate for a better severance package with a well-thought-out strategy and carefully modulated but purposeful approach, there can be great financial, emotional and career benefits. A trusted attorney who understands the area can provide substantial assistance in achieving a successful resolution. Whatever your choice, and whatever your outcome, you should resolve, before concluding negotiations for your next job, to negotiate for your severance package in advance.
Copyright 2002-2009 Gary A. Paranzino.
The author represents individuals who are considering leaving or who have left their employment, whether it be voluntary or involuntary. In these situations, Gary Paranzino deals directly with the employer and its counsel to enhance the separation terms and relieves the employee from having to do so on their own.
Learn more about leveling the playing field and getting a better severance package when leaving your employer.
For information on negotiating a better employment offer in your next job, see the author's related article here .
Gary A. Paranzino , admitted to practice in California and New York
Gary Paranzino has practiced law for over 30 years. He served as General Counsel and Chief Legal Officer for two prominent venture-funded technology companies, PointCast and Ashford.com, where he negotiated and drafted offer letters, employment agreements and separation agreements for CEOs, executives and employees, and managed several mass layoffs involving reductions in force (RIFs), position eliminations and plant closing issues.
Today, in private practice, he spends a significant proportion of his time representing executives and employees entering and leaving technology companies, financial firms and multinational corporations. Visit Paranzino's web site for more information.
This article provides general background information only. It is not a substitute for obtaining professional advice based upon the unique circumstances of your personal situation and your applicable local law. No attorney-client relationship is created by a visitor reading or acting upon the contents of this web site. An attorney-client relationship can only be created with me/my law firm by entering into a written, executed engagement or retainer agreement. If you are interested, please visit my web site to contact me to discuss potentially becoming a client.
Demystifying Your Human Resources Department
In January I will have been with the same company for 25 years. It is privately owned and has no HR department. About five years ago I spoke with the owner about where he thought the company was going and he assured me things were fine and to ‘trust’ him. I know he personally is financially secure and I have no problem with that, but the $600 a year profit sharing isn’t going to get me very far as a retirement fund. I was given a very good raise a few years ago and make a good salary now. But, with the company running on a skeleton crew it is stressful. There is another person at the company that is capable of doing my job that I am sure is getting paid way less than I am and does not participate in our health insurance program. I sometimes get the feeling the owner resents paying my salary along with his half of my health insurance. To tell the truth the atmosphere is very stressful.
I know this seems really odd, but I was wondering if you thought approaching the owner about letting me go with some sort of a severance package would be really out of line? I have been looking the want ads, but with the economy and the unemployment so high I really have to question whether someone would hire me (someone with a good paying job) over an unemployed person? I think the company would save money by letting me go and I do appreciate the loyalty but would like to move on.
If you see any hope in this how would you approach the owner?
First let’s address the asking for severance portion. Yes, I’ve seen this done. I’ve seen people ask for severance and be given it and I’ve seen people told no. It is usually successful when your manager really wants you to be gone. Then you’re just offering to make it simple for him to get rid of you.
I’m not sure this is the case with you. I don’t think you’re a bad employee, just that you are overpaid. Let’s assume, for a moment, that you are overpaid. One of your big concerns is that the miniscule profit sharing program isn’t helping your retirement. Well, I’ve got bad news for you: If you are already over paid any new job you find isn’t going to come with fabulous profit sharing. You’ll end up with LESS money then before and still won’t have anything for retirement.
Even though you’ve worked here for 25 years, you can’t expect them to take care of your retirement. You need to change your lifestyle to save money, regardless of profit sharing dollars.
I also suspect you’re not ready to hit the job market quite yet. Why? You mention “looking through the want ads.” I’m pretty sure that’s an indication that you don’t realize how the job market has changed in the 25 years since you last job hunted. Want ads are generally a waste of time. Online job boards are better, but still not super. (Although, for full disclosure, I will say that I got my last job through Monster.com, so it does work, but it is one of many methods.) If you want a new job, you need to network.
This may be difficult because you’ve been in the same company for so long. It’s time to start contacting former co-workers, current friends and family and let them know you are looking for a change. You need to figure out what companies you want to work for and then figure out how to get hired. Want ads are not the way to go.
The economy is terrible, so don’t count on getting even a huge chunk of severance and then walking into a new job the next week. Even a large severance payout may not be enough to see you through to a new job, which may well pay less than your current one.
I realize I’m being as comforting as a bunch of frozen porcupines, but this is reality.
Unless the writing on the wall is that your boss wants you to leave, and that he’s actively documenting reasons to fire you, I think you’d be foolish to ask for severance at this point. He may take you up on it, give you 6 weeks pay and send you out the door, and then what will you do?
If he has a history of giving out large severance payments, that’s a different story, but I doubt he does. Most small business don’t, and I doubt he’s ever addressed something like this before.
Severance sounds fabulous. It’s money for sitting on your behind. Yeah! Except that money eventually runs out. Plus, you’d have to pay for COBRA or get other health insurance, which will run you a lot more than what you’re paying now.
Find a new job, then quit. Unless you’re going to be fired. Then ask for severance. Just be direct. “Bob, I know you are unhappy with my performance. I’m willing to leave in exchange for 6 months severance. I’ll sign a general release as well. Let me know what you think.” And then you negotiate from there. If he wasn’t planning to fire you, though, this tells him flat out that you’re unhappy and may make your life worse.
Keep in mind that you’re an at will employee and he’s not required to give you any severance.
How to Ask for the Severance Package that You Deserve
How to Ask for the Severance Package that You Deserve
Today’s blog entry was inspired by a client whom I coached through a difficult situation at her work. She said it would be great to just give people an idea of what they can do for themselves, so if you’re reading this entry, hopefully it will help you or someone you know.
During my 13 years of coaching clients and in my own professional experience, I have witnessed every kind of workplace abuse: from mismanagement and harassment by bosses and employers down to bizarre and disturbing behavior from fellow coworkers. It’s unfortunate, but those of us who walk a straight line, work hard to take care of ourselves or our families, and just want to derive some kind of satisfaction from our work often end up turning a blind eye to unethical practices and general unprofessionalism for far too long before finally putting a foot down and saying ENOUGH IS ENOUGH.
If we try, we can usually think back to that fateful conversation or that ugly decision that we just couldn’t go through with: the moment when everything changed. No matter what led up to it, most of us are shocked when it happens. It feels like it comes out of nowhere. One day we are on the top of the world, our job is secure, and everybody loves us; but in just 24 hours, the managers, the executives, even coworkers can have a CHANGE OF PERSPECTIVE, and suddenly we are seen as a burden, an excess, an unwanted.
And that is when we become the target.
So, how do you deal with being transitioned out of a company that you had been pouring your heart into? The most important thing is, as the Brits would say, to KEEP CALM AND CARRY ON. No matter how difficult things seem or how unfair the situation gets, don’t lose your professionalism. Don’t try to come up with excuses or make up arguments to change anyone’s mind. Accept that what is done is done and start thinking about what you need to do to take care of yourself.
Remember, don’t involve Human Resources; their job is to support the company, so they have to remain neutral. After you have come up with an idea of what you need, you will work with the management in a discreet manner to secure the kind of severance package that you deserve.
People always say to me that there is no way they can ask for so much or no way anyone would listen to or care about their hardships. This is NOT TRUE. People get caught up in their jobs and in the business of their companies, but if you approach them as an individual and appeal to their personal side, they will usually be happy to do what they can to help. Besides, it doesn’t hurt to ask; NO ONE should be too proud to ask for help.
This is the part that people have the most difficulty with when trying to secure the best possible package: learning to humble themselves. Before you do anything else, find someone in the company that you can trust, who will keep your confidence, and confide in them. Tell them about your personal situation. Let them know that you need financial help, medical benefits, and time to find another job. Ask them for help. Right now, the most important thing to you should be taking care of yourself or your family. There is no shame in asking for help, and besides, some day they might be asking you for the same thing.
Here is a general outline for a statement of request which I have been using and modifying since I began coaching people:
I have been thinking about what happened regarding my employment this past month. When I was told that I needed to resign in two weeks, I was completely taken aback.
Now, I’m a professional and I have not discussed this with anyone nor mentioned the reason for why I am leaving, which has put me in a very uncomfortable position. I realize I haven’t yet communicated my needs because of the initial shock that I was in, but I need assistance during this transition to ensure that me and my family are not heavily impacted.
I’m sure you’re aware that I have loved working at this company and have devoted myself to the position. Since I am financially unprepared to make this transition, I would like you to consider the following:
I would like to remain in my position until I have secured other employment. I am looking for a job in one of the worst job markets in the history of our economy. Based on my research, it would take a minimum of three to six months to secure a job in a strong economy. It will likely take me longer than the amount of time you have provided me with.
I will continue to be a professional, and I believe we can make this a smooth transition for both our parties, but there are a few basic demands that I need you to meet: 1) I need a severance package. 2) I need benefits until I have secured other employment. 3) I need all my vacation paid out. 4) I need additional compensation to hire a career coach that can help me to navigate this difficult situation.
Go get what you deserve, and don’t forget to write us at [email protected] to tell us your story!
I was suddenly laid off after nearly twenty years of service when the company decided to terminate its Fixed Income Department. I’m a stage-four cancer survivor (i.e. I have to have health insurance) and I have one child in college and one starting college next year. I had no idea what I was going to do, until I found dear jane. It turns out I was entitled to much more than I was being offered. Rebecca helped me secure an extra $50,000 and five more months of COBRA, and they even covered the costs of hiring her. Thanks Rebecca.
I had been with the company for seven years when I was laid off with no notice and offered seven weeks of severance. Because of my family’s situation, I simply couldn’t afford to not have health insurance. Rebecca helped me figure out what I should have been offered and how I could get it. After working with her, I was able to get an additional $13,000 in severance and an extra six months of health insurance!
Yesterday, without warning, my whole team was laid off. We didn't even get to finish the day or tidy up loose ends, document anything, etc.
After 9 years at a financial company, currently as a Quant, I am being offered only 3 weeks severance pay. When I started we were passing spreadsheets back and forth!
I want to ask for more. How does one go about this?
I received an overnight delivery with standard paperwork and I must sign to get the severance pay.
The timing could not be worse. I am a remote employee and I need to remain a remote employee. I can't relocate. I live in such a remote area that there are no jobs here. My wife and I are undergoing IVF, mortgage payments, my wife is back in school getting an RN degree with 18 months left to go. Starting to feel the stress today.
We had an employee refuse to sign them after we fired them, for cause. A few weeks later he asked for a larger severence than we initially offered. We offered a month's worth of pay, and he wanted way more than that if I recall correctly. We said no. He then lied, said he was fired for racial discrimination. Threatened a lawsuit. We caved and gave him an extra month of severence. He signed the papers and took his two months of free pay.
Aside: I personally hired this person. I noticed big performance problems early, and personally mentored him for six months before coming to the conclusion that we needed to let him go. I was the one accused of racism. It hurt. I lobbied for more time to turn this hire around, I gave him so much attention and extra time to turn things around. Only to be lied about in the end. Worst moment in my career so far. I wanted to fight any lawsuit-- we had tons of documentation and evidence that the fire was 100% performance related including commits demonstrating clearly these problems (and extensive notes documenting the improvement plan). But our employement lawyer and the CEO figured it would just be easier to give the severence.
Anyway. You may have more leverage than you think. Though, just be ethical about how you handle it. They really need you to sign those papers just to tie up the legal loose ends.
Can I ask why you hired him in the first place?
Everything is up to negotiation. You do have leverage, your lawyer will tell you how much.
The process would be:
1. Don't sign anything.
2. You hire a lawyer who specializes in employment disputes. If the severance package has a deadline, your lawyer will email the company saying they represent you and need more time to respond.
3. You meet with your lawyer and explain your situation. My lawyer explained to me that when you get laid off, your company is breaking your employment contract. That means they have to provide you with compensation to make you whole. The amount of compensation depends on your skills, experience, job level, age, health of the job market and any other specific circumstances. Basically, the company has to compensate you enough money that would make you whole - which is be employed again. The compensation is based on the time it will take you to get a new job. 3 weeks is kinda short. Also, there maybe rules-of-thumb: in my city in Canada, we expect to get a minimum of 1 month of salary for each year you worked with the company. I have seen some very generous companies give 2 months of salary per year worked.
4. The lawyer will write up a demand letter asking for more severance. From that point on the lawyer does all the communications with the company. My company also offered employment services to help me find a new job which i didn't need, so my lawyer said ask the company to pay that to me in cash. was like $5K. My lawyer said there is zero risk in sending a demand letter - never will get a worse package.
5. Depending on the size of the company, they may expect that a certain percentage of employees will dispute their severance package - which means they already planned to give complainers a bit more. as in, already authorized, you ask, they give. easy.
6. My company said "No9quot; to the demand letter. They pointed out that there were many jobs that I would be hired for and my severance is enough. They provided the job postings that I would be suitable for.
7. In response, my lawyer told me to go through each job posting and write a couple sentences of why I am not qualified for them. My lawyer sent that to the company.
8. Company responded with a higher severance, an extra few months of salary on top of the 1 month per year and the $5K mentioned above. The legal costs were less than $2K.