- 1 how to negotiate severance package
- 1.1 How to negotiate severance package
- 1.2 How to Negotiate a Severance Package
- 1.3 How to Negotiate Your Severance Package
- 1.4 How To Engineer Your Layoff eBOOK
- 1.5 Testimonials From Readers
- 1.6 How to Negotiate a Severance Package
how to negotiate severance package
How to negotiate severance package
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.
How to Negotiate a Severance Package
A severance package is a group of optional benefits awarded to a terminated or laid-off employee. Benefits may include additional salary, continued health insurance or other items. Your post-employment behavior, past employee performance and the company's financial situation all have bearing on your severance package. Use these tips to negotiate severance when you've lost your job.
Coping With the Loss of Your Job Edit
Understanding Your Severance Package Edit
Negotiating the Severance Package Edit
How to Negotiate Your Severance Package
The negotiation of a severance package is generally related to executive or professional contract entitlements. Negotiating a severance package is often quite difficult. Depending on circumstances and your skills as a negotiator, you may be able to achieve a valuable settlement.
The Basis of Negotiation
It's important to recognize that some things are negotiable in a severance package, and some aren't. Employers negotiate on the basis of necessity. They don't need to negotiate aspects of contracts where entitlements are agreed by the signatories.
The most likely areas of negotiation are:
- Contract financial entitlements payable to the employee: Anticipated earnings, commissions, etc.
- Value of benefits in the agreed employment package over the term of the contract: Insurance, services, 401k, etc.
It's in the interests of both parties to achieve a negotiated settlement if possible. Legal disputes can be extremely costly to both, and very time consuming.
Initial offers: setting up the basis of negotiations
The common method of initiating negotiation of severance packages is offer/counter-offer. This is actually a very safe and efficient form of negotiation for employees, because all offers are made in writing.
This is the basic process of commencing negotiation:
- The employer makes the initial offer: This is usually a dollar based offer, conditional on acceptance by the employee of that the proposed settlement discharges all the employer's obligations under the contract, and no further claims are to be made.
- The employee assesses the value of this offer: The assessment of the offer versus the value of the contract can be a complex process. Some professional employment contracts are worth very large amounts of money, and so are their related packages.
- Acceptance or counter offer: The employee may accept, or make a proposal of their own. The counter proposal is commonly also a dollar based offer. It's useful to define offers in these terms to maintain a clear picture of the actual values of offers.
At this point, where both parties have expressed their positions, the offers can now be negotiated effectively.
Negotiations are based on the areas of disagreement. Values of offers are the primary yardstick for negotiation, and some trade-offs may be possible derived from the preferred positions of the parties.
One of the fundamental principles of negotiation is that the clearer the benefits of your proposals are, the more likely you are to achieve a productive outcome. You'll also achieve much faster decisions from your negotiations.
- A benefit to the employee is valued at $20,000 by the employer.
- The employee values it as $50,000.
- The employer has made an additional offer of insurance to the employee valued at $30,000.
- The employee doesn't want the insurance, but does want the cash.
- The employee offers to leave out the insurance and settle both issues for $50,000.
Mathematics which works well for both sides is a very effective negotiation tool. In this case the employer is also spared the cost of maintaining the insurance policy, and saves time on negotiation of the other benefit.
This is a typical "win-win" scenario. It's invariably better as a negotiation technique than "haggling" over amounts of money, which may simply result in a negative response.
How To Engineer Your Layoff eBOOK
“Spent $85, negotiated a $50,000 severance package. Not a bad trade! I learned more from Sam’s book about negotiation strategies, the human condition, career growth, and happiness than anything I’ve ever read.” – Jack (HTEYL reader)
Never quit your job, get laid off with a severance instead. Most people quit because they are too scared to negotiate. I’m here to teach you how to negotiate a severance package so you can have a financial runway to do what you really want to do without burning any bridges.
How To Engineer Your Layoff is newly updated with 50 more pages of material to help you leave your job with money in your pocket. Since publishing the first edition in 2012, I’ve received lots of feedback from readers who’ve successfully engineered their layoffs to work in a new field, spend more time with their family, or travel. I’ve incorporated many of their successful strategies in the 2nd edition and included new insightful viewpoints from managers who’ve had to lay people off.
Ask yourself the following questions:
What if I could take a six-month break and travel the world for free?
Wouldn’t it be wonderful to spend more time watching my kids grow up?
Wouldn’t it be great to connect more with my aging parents?
How awesome would it be to have free startup capital for a new business idea?
How great is it to never set an alarm clock again because every day is Saturday?
Will I look back on my life and regret I didn’t do certain things?
My book will empower you with important employment knowledge that shockingly few employees understand. You’ll learn how to build the right relationships at your firm to negotiate the best severance package possible. My book will also help squash any guilt you may have about leaving your colleagues behind. I strongly believe your life will change for the better.
Why It’s Better To Get Laid Off Than Quit
If you quit or get fired, know that you are not eligible for any remuneration from your employer. They won’t give you paid health care benefits (COBRA) nor will you be able to participate in your state’s Worker Adjustment Retraining Notification (WARN) program which typically pays two to three months of salary. Furthermore, quitting makes it difficult for you to receive unemployment benefits because the logic is that if you quit, you don’t need the money!
Unless you plan on working until death, you will eventually leave your firm. Thus, it is important to know your company’s retirement policy (pension, early retirement age where you can quit and have benefits, etc) so that you know your worst case scenario backstop. If you want to take matters into your own hands like I did and leave sooner, then my book will absolutely help you make a better transition. It’s all about arming yourself with knowledge to level the playing field with your employer and saying good-bye on YOUR terms.
Applicable To Everyone, Not Just American Employees
How To Engineer Your Layoff transcends state and country labor rules because it is a book about negotiations and building the right relationships. To get laid off, every single employee has a manager and a legal/compliance/HR department they must deal with. The desire for performance, harmony, and collaboration is similar across all organizations.
My book highlights the main concerns companies have when letting people go and why companies will gladly pay you benefits upon your departure if you show you understand their concerns. The last thing an employer wants is a disgruntled employee coming back to the former workplace and causing harm.
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Robust Research For The Book
My book is a step-by-step guide that gives you the framework and the guts to navigate the sensitive process of severance negotiations. The first edition took me two years to write due to the immense amount of time researching the process, testing the framework, advising multiple candidates, and implementing my own layoff.
The second edition took another year to write , and expands the book from 100 pages to 150 pages. It is filled with new success stories, never before used strategies, and the latest real-time employment news. I’ve literally spoken to over 100 people who have either successfully engineered their layoff, or who are managers or HR personnel who have helped engineer other people’s layoffs.
Don’t Be Like Most People Who Quit
One acquaintance quit his job only to discover a week later that his entire staff got let go with two weeks of severance per year worked. Not only that, this person wasn’t eligible for unemployment valued at $21,600 a year here in California and missed out on 12 months worth of health care by his existing firm. Although he knew his company was in trouble, he became impatient. If he had read my book, he would have learned how to carefully craft a plan to not only stick it out for the layoff round, but probably negotiate a severance package.
Despite being constantly abused at work, a friend insisted that quitting her job was the “honorable way to go.” She couldn’t wait to get started on her entrepreneurial activities and felt confident she would succeed in the enormously competitive field of internet marketing. Ten months later, she admitted to exhausting her entire life savings of $35,000 because the business was struggling to get off the ground.
If she had engineered her layoff, her severance package would have served to protect some of her savings. As an employee with five years of service with the same employer, her severance package would likely have included at least three months of salary and health insurance premiums.
Coming out of college, I wanted to start my own company. Instead, I got sucked into the corporate world. After 13 years of working on Wall Street, one of the most brutally competitive industries on Earth, I had enough. I wanted out, but was too afraid to leave a multiple six figure paycheck.
Negotiating a severance package in 2012 was exactly the catalyst I needed to build Financial Samurai full-time. I started this site in 2009 and it has since grown to over 1 million organic pageviews a month because I just love what I do. My lump sum severance provided for over six years of living expenses, and I’m still receiving deferred compensation more than three years after negotiating my layoff! My total severance package was valued at over $550,000.
Without a severance, I don’t think Financial Samurai would have grown to what it is today because I would have been too focused on monetization. The severance package I negotiated changed my life for the better and today I’m now free to work when I want, where I want, and do something I truly enjoy every single day.
Here is a video by Jeff Bezos, Founder of Amazon.com which embodies my thoughts:
* 17 Detailed Chapters With Recaps Of Key Points
* Separation Agreement Negotiation Tips
* Negotiating A Severance Package When You’ve Got Another Job Lined Up
* Helpful Insights On Your Employment Rights
* Reasons Why You Should Engineer Your Layoff
* Reasons Why You Should Not Engineer Your Layoff
* Case Studies Of People Who’ve Succeeded In Getting Paid To Leave
* Why And How I Engineered My Own Layoff
* Advice On Costly Mistakes To Avoid
* A Framework On How To Develop Multiple Income Streams
* Advice On Life After Separating From Your Day Job
* A Worksheet To Determine Whether You’re Ready
* A Detailed Checklist Covering All The Steps You Should Take
* Bonus Chapter For Managers And Employers
* Resources And Recommendations
* Reference List Of Featured Posts
* Over 150 pages of life-changing advice
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* Sam worked in finance for 13 years at Goldman Sachs and Credit Suisse, received his MBA from UC Berkeley, his undergraduate degree from The College of William & Mary, and launched Financial Samurai in 2009, one of the most trusted personal finance sites with over 1,000,000 page views a month.
* Sam ran a multi-million dollar business where he actively participated in the recruitment and retrenchment process. Sam has interviewed hundreds of candidates and was a manager for the last five years of his career.
* By the age of 28, Sam became a millionaire and became a multi-millionaire by the time he engineered his layoff in 2012 at 34.
* Given Sam is financially independent, he is less influenced by money. He is also beholden to no one. As a result, Sam provides more unbiased, edgy, straight from the gut views on personal finance.
* Sam successfully negotiated his own severance package and has helped over a dozen people 1X1 to successfully negotiate their own.
* Financial Samurai has been featured in the world’s leading publications such as The LA Times, Bloomberg, The Sydney Herald, The Wall Street Journal, The Consumerist, and Business Insider.
Testimonials From Readers
“If your book was printed on lead plates, it would still be worth its weight in gold.” – JB
“My wife is happy and astonished thinking that I’m the only person she knows that would find instruction on getting laid off, and then actually following through with it successfully. I can hardly believe it myself!” – Doug
“HTEYL helped me get out of an unbearable work situation. My company was losing money, moral was very low, and my boss was like Jekyl & Hyde! Not only am I now much happier working at a new startup, I was able to take six months off and not have to worry about anything financially due to my severance package.” – Encore Career
“When I was in college, I wanted to be a violinist and music teacher. When I graduated from college, I became an administrative assistant instead. It was a thankless job that became more unrewarding when I was promoted to sell the company’s software. Thanks to Sam’s book, I managed to negotiate a severance package worth roughly ten months of living expenses! I’m now a violin teacher and couldn’t be happier!” – Musician
“I was just about to quit my job before I stumbled across HTYEL. Thank God I didn’t quit! Thanks to Sam’s guidelines, I was able to get laid off in the last round of employee reductions. I received six months of health care insurance, two months of salary, plus another three months of severance. I’m now off to explore North Africa with my girlfriend who is a teacher during summer vacation!” – Justin
“Finally, a book that teaches us how to break free from the corporate grind and make money in the process! I’ve been working at my job for over 15 years and was becoming a zombie. I no longer had the motivation to do anything beyond what I was supposed to do. I’ve saved up a good amount and How To Engineer Your Layoff was just the right push I needed to finally take a break and not feel guilty!” – Michael
“After the birth of my baby girl, I just couldn’t stand leaving her all day at home with the nanny while mommy went to work. I have an MBA and thought I wanted to work all my life. HTEYL gave me the impetus to negotiate a mutually beneficial separation package without burning any bridges.” – Sherry
A Couple Success Story Articles From Happy Customers
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Engineering your layoff takes time and planning. There is no magic bullet, but there is this incredible resource to help you walk away with an important financial safety net. Success requires action. Once you are armed with knowledge, everything becomes that much easier.
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How to Negotiate a Severance Package
Severance pay is compensation paid by an employer to a terminated employee that is the result of either: (1) A pre-arranged contractual agreement between the employer and employee; (2) A company policy dictating the terms thereof; or (3) An attempt by an employer to obtain specific assurances and promises from the employee in exchange for a monetary benefit. In this article, we will concern ourselves only with #3.
The first question that I am often asked is this: Are employers REQUIRED to pay severance to its employees upon termination. The simple answer is NO. There is no law requiring an employer to offer severance pay to a terminated employee. However, an employer may have a company policy that dictates specific severance provisions for terminated employees.
Therefore, the FIRST place any employee should look when they receive a notice of termination is his or her employee handbook to ascertain whether they are entitled to receive severance pay from his or her employer. If your company does not have an employee handbook, then call your Human Resources department and ask if the company has a severance pay policy.
Now that you know what severance pay is and where to look for more information about your employer's severance policy, let's talk about the art of negotiation. Let's say for example that your company has a policy of offering two weeks for every year of employment and you have been terminated after five years of employment. The employer offers you ten weeks in accordance with company policy, but after IRS withholding, you'll be left with net compensation that is closer to five weeks of pay and you don't think that will be enough to help you get by until you're able to find another job. So what do you do?
Negotiations can be very complex beasts, but for the purposes of this article, let's break down a negotiation into three components: Information, credibility, and leverage.
Let's start with INFORMATION. In my seventeen years of experience as a severance lawyer, the first thing I look at is the circumstances surrounding the termination: Was the employee laid off as part of a company wide reduction in force (RIF)? Was the employee the only person terminated? Was the employee a 'good employee' (i.e. reliable, dedicated, well-reviewed)? And most importantly, does the employee have any reason to believe that he or she was terminated on the basis of his or her race, sex, ethnicity, religion, sexual preference or disability?
Information is the most overlooked part of the severance negotiation. A negotiation is not a lawsuit, so there is no legal right to demand that your employer turn over all of the relevant information that may help you make an educated decision about your proposed severance package. As a result, the onus is on the employee to gather as much information as possible to prepare (or help your attorney prepare) for the negotiation. A well-informed employee is a well-armed employee.
The next component of the negotiation is CREDIBILITY. Credibility affects negotiations in many ways. For example, let's say that an employer tells you that the offer (in this case) is ten weeks and that they will not negotiate. This employer tactic is the 'Take it or Leave it' tactic and make no mistake -- it is a tactic, a strategy. The idea is to take a hard-line stance in an attempt to impose the employer's will upon the employee in the hopes that the employee will concede defeat and accept the proposed severance package. But what if your friend who got laid off last year hired a lawyer and received twenty weeks (for the same amount of service)? What does that say about the company's credibility? What if the company tells a woman returning from maternity leave that her job was eliminated as a result of a reduction in force but she learns that her male counterparts were immediately re-hired in comparable positions? These are the reasons why it is so important to assess credibility.
But wait! It's not just your employer's credibility that plays an important role in the negotiation -- it's YOURS as well. Let's say you falsely tell your company that you are "reviewing the severance package with my severance attorney" in the hopes of extracting additional compensation. If the company doesn't receive a letter from your attorney, they may rightfully conclude that you are bluffing and refuse to up the offer. Or perhaps you've actually retained a severance lawyer and in an attempt to obtain additional compensation, your lawyer threatens to file suit against the employer but never actually does so. In making an idle threat, your attorney has lost credibility that will affect his ability to maximize your compensation. Credibility is crucial in negotiating a severance package. If you suspect that your employer is not being truthful with you about the reason for your termination or the bottom line on a severance package, it's time to call a severance attorney.
The final, and most important, component of a negotiation is LEVERAGE. Leverage is the power that one party wields over another in a particular negotiation. In a severance negotiation, leverage is based upon needs, wants, and desires. An employer wants you to sign a severance agreement in which you agree not to sue or file any claims for discrimination for eternity. The employer desires to close your employee file and effectively close the book on you. You, on the other hand, need to be able to pay your bills until you find another job. Who do you think has greater leverage in a typical severance negotiation? If you said, 'The Employer' you'd be right most of the time.
The reason why leverage is so important in a severance pay negotiation is because it affords the employee the opportunity to tilt the leverage scale in his or her favor to garner better terms. For example, let's take the previous example of the woman who is terminated upon her return from company-granted FMLA maternity leave (sadly, an all-too-common situation even in today's society). Whereas the employer may typically have the upper hand in a severance negotiation, the fact that the employee is a female (protected class) who had exercised her legal right (protected activity) and was terminated shortly upon her return to work may create a presumption that she was unlawfully terminated. In this instance, this employee may have tremendous leverage (depending on the circumstances) to apply and essentially force the employer to pay out a severance package that adequately compensates her for the loss of her job, in exchange for her promise not to file suit against the employer.
As you can see, with so many factors involved and so many legal issues facing employers, a severance negotiation is not something to be taken lightly. Because severance pay is not a legal requirement, an expertly negotiated severance package could mean the difference between one day's pay and a hundred weeks pay! For most people, other than negotiating the sale of a home, this is the largest negotiation a person will ever encounter in his or her life.