Negotiating Better Severance - What companies don't want you to know
By Jason Stern, Esq. Special from Bottom Line/Personal
August 1, 2009
Severance packages have become stingier as employers struggle to fit large-scale layoffs into ever-tighter
budgets. At the same time, obtaining attractive severance packages is more important than ever for terminated
employees because finding a new job can take many months in this economy.
Laid-off employees often fear that the initial offer will be withdrawn if they attempt to negotiate,
but this almost certainly will not occur. Employers do not provide severance out of kindness. They
do so in exchange for the employee’s signature on an agreement not to sue for wrongful
termination. Obtaining that signature has value to the company.
To get all you can if you are let go...
DON’T SIGN RIGHT AWAY
Do not sign a severance agreement when it first is presented to you. Tell the human resources (HR)
representative that you need time to review it with an attorney. Using this phrase is an excellent
negotiation tactic even if you do not expect to hire an attorney. If the HR rep acts upset that you
intend to involve an attorney, point out that the company certainly has its attorneys review such
documents. Then scan the final paragraphs of the agreement -- there’s usually a clause near the
end stating that the company encouraged you to consult with an attorney. If you see this, point it
out to the HR rep.
Warning: If your employer encourages you to resign rather than get laid off, politely decline unless you are
offered a substantially improved severance package for doing so. Resigning may deprive you of your right to
collect unemployment insurance... or to sue for wrongful termination.
WEIGH YOUR PRIORITIES
Which component(s) of the severance offer would you most like to improve?
Cash. Many companies now offer only one to two weeks for every year you have worked for the company. It is
reasonable to request one month of severance pay per year.
Pension benefits. If you’re within five years of retirement age, ask the company to continue funding your
retirement account until that time.
Health insurance premiums. If you expect to use COBRA (Consolidated Omnibus Budget Reconciliation
Act) or a similar state program to remain on your employer’s health insurance plan, ask your employer to pay
some or all of the insurance premiums.
With the government stimulus package picking up 65% of premium costs for nine months for eligible
individuals, I would say that all terminated employees should ask their employer to pick up the
remaining 35% for nine months. Employees with valid claims against the company and employees
with more than 10 years of service should request the standard 18 months of paid COBRA premiums.
Written waiver of your noncompete agreement. A noncompete (or noncompetition) agreement prohibits
an employee from working in a related business. Other employers might be wary of hiring you if you don’t have
a waiver of this agreement -- even though your former employer probably cannot legally enforce your
noncompete agreement after laying you off.
Office equipment. Keeping your company laptop or BlackBerry can help you with your job search.
Helpful: Offer to let the company’s technician wipe clean the computer’s hard drive.
Vacation days. Ask to be paid for any unused days. Some states require employers to pay for unused
vacation time. Sick days have less protection than vacation days. Most states do not require employers to pay
for unused sick days.
Reference letter. Decline to sign any severance agreement until you receive a "mutually acceptable" letter of
recommendation. This tactic typically yields a far more favorable recommendation.
EVALUATE YOUR NEGOTIATING POSITION
You might have more leverage than you realize...
Have you been offered any severance benefits that you don’t need? Ask the HR rep to estimate the
value of these benefits, then try to trade them for severance benefits that are of greater use to you.
Examples: COBRA insurance premium payments may be of little value to you if you have access to a spouse’s
insurance plan. Outplacement services are of no value if you intend to retire or already have another job lined
Is there any hint of discrimination in your firing? Women who have young children or who are of
childbearing age... employees past age 40... and minorities should consider whether their group seemed singled
out for termination or whether the workplace was hostile to them. If so, the threat of a lawsuit could make your
former employer more open to negotiation on the severance package.
Have other terminated employees been offered more than you? This is no time to be shy about
talking with peers about money. If others got more, you probably can, too.
Do you have a friend in upper management? The HR rep is likely to treat you well if you can convince a
highly placed executive to call and tell him/her how valuable you have been over the years. HR employees
worry about their jobs, too -- they won’t want to risk angering any high-level executives by treating their friends
Did you receive favorable performance reviews throughout your employment? Bring copies of
these with you when you meet with the HR rep. Better-than average employees typically receive better-than-
average severance packages.