Severance Package Negotiations and Severance Agreements
Regardless of whether you are leaving your employment voluntarily or your employer terminated the employment relationship, the departure from a position is rarely easy. You do have certain rights under federal and Massachusetts law, and your employer must comply with various regulations. With the right exit plan in place through effective severance negotiations and a valid, enforceable agreement, you can ensure a smooth transition into your next environment.
Our experienced employment attorneys at Rodman Employment Law are here to assist you through the challenges involved with severance negotiations and the severance agreement that results from these discussions. We can discuss your rights and responsibilities after reviewing your situation at a free consultation, but some general information may also be helpful.
Overview of Severance Package Agreements
At its core, a severance agreement is a contract that governs the relationship between an employer and soon-to-be-former employee upon termination of the employment arrangement. The agreement incorporates the typical rules and regulations of Massachusetts contract law, along with some concepts that apply only to severance situations. Generally, a severance agreement and the negotiations surrounding it require you to release any claims you have against your employer, in exchange for the benefits package your employer offers.
Massachusetts and Federal Law on Severance Agreements
A common misconception about severance agreements is that all employees are entitled to them, but this is not the case. Massachusetts is an employment at-will state, so an employer can terminate an employee at any time, for any reason. You are entitled to receive, on the day of your discharge, unpaid wages, unused vacation time, and certain other benefits under the Wage Act. However, you are not entitled to a severance package.
As a contract, your severance agreement must include offer, acceptance, and consideration to be enforceable. The legal definition of consideration is a bargained-for exchange of some item of value, to support the obligations of the contracting parties. In severance agreements, this consideration must be some benefit to you that is above and beyond your normal salary. You are undertaking new obligations by signing the severance agreement, so your employer must as well.
Federal law on severance agreements may be relevant to your situation as it concerns deadlines. For instance, the Older Workers Benefit Protection Act applies if you are over 40 years old and your employer requests you to release any claims you may have for age discrimination. You must be given at least 21 days to review a severance document under the circumstances, or 45 days if the terms of a severance package impact an entire class of employees. In both cases, you can revoke your acceptance of a severance agreement within seven days. To protect your rights, you must take action according to these deadlines.
Key Points in Severance Negotiations
You are entitled to retain an attorney to represent you in connection with a severance package. Hiring a lawyer to review your written agreement is a start but, to fully protect your rights, you should have an attorney advocate on your behalf during severance negotiations. The most important points for your exit strategy include:
- Payment: Because of the consideration requirement mentioned above, there must be something of value provided by your employer in return for you agreeing to the terms of a severance agreement. It is likely that the item will be payment of a dollar sum or other benefit, so your discussions should include details about how it is paid, tax considerations, what is included in the amount, and other factors.
- Release of Claims: Besides payment, your release of claims against your employer is another essential term of a severance agreement. It is critical to understand what you give up by accepting the money and signing the agreement, especially your rights regarding such employment law claims as:
- Discrimination based upon race, ethnicity, age, disability, or your membership in other protected classes;
- Sexual harassment or discrimination;
- Violations of leave laws, including the Family Medical Leave Act;
- Retaliation claims;
- Wage and hour laws;
- Your rights as a whistleblower; and,
- Other types of claims.
- Health Insurance: Your employer may include health insurance benefits, either allowing you to stay on the company’s coverage for a certain amount of time, paying your premiums directly, or offering a stipend towards a new policy.
- Retirement Benefits: If your employer provided or met a contribution amount toward your retirement benefits, your severance agreement should include the details on how these assets will be handled.
- Employer as Reference: In situations where the surrounding circumstances of your termination were not ideal, you should make employment references a point in your agreement. A potential employer may want to contact certain individuals at the job you are leaving, and you do not want to ruin your prospects with a poor performance review. Many severance contracts include a non-disparagement clause preventing your employer from unfair criticism.
- Confidentiality and Non-Disclosure: Your employer may have a legitimate business interest that it seeks to protect when you leave, so your contract will likely require you to keep certain information confidential. Still, you do have rights and the terms of the agreement cannot prevent you from earning a living. Resolving these matters is crucial in severance negotiations.
Addressing Unfair Severance Agreements
There are certain pitfalls in severance agreements and negotiations, so it is important to bear in mind that:
- Severance agreements are typically drafted by employers and, as such, are bound to favor their interests;
- Signing a severance contact will create new obligations for both you and your employer; and,
- You are giving up some legal rights when you execute a severance agreement.
With these consequences in mind, you can see where you may be at a disadvantage if you do not have an experienced attorney to represent your interests. You should discuss your situation with a lawyer as soon as you foresee severance negotiations and a potential agreement.
Severance Negotiations & Agreements – Resources & Statistics
Severance Pay – Webpage from the Department of Labor which describes severance pay.
How is severance pay calculated when it is due? – This Department of Labor resource details the fact that severance pay is not required unless there is an agreement between the employer and employee.
The Operation of Severance Pay Plans and Their Implications for Labor Mobility – This publication, originally published by the Department of Labor in January 1966 and provided here by the St. Louis branch of the Federal Reserve, provides historical information and case studies on severance pay.
Executive Severance Agreements – A paper published by the University of Pennsylvania which studies severance agreements and how they affect CEO turnover.
- According to the Washington Post, in 2009, 51 percent of large U.S. companies offered a standard one to two weeks’ pay for each year of employment as severance pay.
- According to the Washington Pot, in 2009, 33 percent of large U.S. companies used a formula that combined years of service with salary or job level.
Trust a Massachusetts Attorney to Protect Your Rights in Severance Negotiations
The right exit strategy can ensure a bright future for your employment potential, but the key is making sure your severance agreement and related negotiations properly protect your interests. No matter where you are in the stages of departure, our experienced attorneys at the Boston-based law firm of Rodman Employment Law can help. Please contact us or call 617.820.5250 to set up a consultation at our Boston, MA office.