Severance Negotiation

You’ve been fired and the Company almost immediately presents you with a monetary “severance” offer buried in a long contract, or severance agreement, for you to sign. This presents many questions: What’s the company’s motivation to terminate? Is this all I can get? What rights am I signing away? How will this affect my equity, bonus, and benefits? Do I have to sign this? What happens if I don’t sign? This was handed to me right after being fired, so how long do I have to sign it? How does this affect my noncompete?

IMcP’s employment lawyers have negotiated all kinds of severance agreements for clients. Some agreements are very long and complicated, some are just a couple pages, but all are very important as recognition of the client’s past employment contributions and value to the Company and for the Client’s financial “bridge” to the next employment chapter. Indeed, most of the time, controlling the “narrative” of the employment separation is the most important factor in any negotiated severance agreement.

Severance Is Not Generosity – You are Releasing Important Rights

While Companies will often pitch an offered severance agreement as something “extra” provided to you as generosity, don’t be fooled. Severance is not money for nothing. The Company gets very valuable terms in exchange for the money. In almost all circumstances, the severance agreement will release your claims or potential claims against the Company. This means that if the Company has violated your rights, or caused you damages, by signing the severance agreement you usually agree never to bring those claims. It is important to negotiate the scope of mutuality of any release in a severance agreement, and most importantly to properly determine the true value of your claims and potential claims that you are releasing. You wouldn’t sell a house without knowing its value. Selling away your rights (i.e., claims) is no different.

Having negotiated scores of severance agreements (and at the highest C-Suite levels), IMcP can present the “market”/fair terms of severance depending upon your unique circumstances and leverage.

Buried Non-compete or Non-solicit?

Often, but not always, in addition to a release the Company will include a non-compete and non-solicit clause to the severance agreement. These clauses should be carefully reviewed and analyzed, including whether the terms go beyond the scope of any preexisting restrictive covenants, as they could significantly restrict your ability to secure a new job after being fired.

Equity or Stock and Issues, and Change in Control (CIC)

For those executives and employees who have any outstanding–or in some cases even vested–equity, there must be a careful analysis as to the effect of the severance agreement’s terms, and status of termination (i.e., without cause), on this valuable property that you’ve earned. Employees are surprised that in some cases even vested equity not yet delivered can still be forfeited under the terms of an Award Agreement or Company’s equity incentive plan.

Crucially, if your termination is during the Company’s merger, acquisition, change in control, or management shakeup, then you should review and understand how that might affect your outstanding equity, and whether it is “accelerated,” before agreeing to any terms, especially related to equity, in an offered severance agreement.

Other Considerations: Benefits for Severance

Sometimes lost in severance negotiations are the outsized impact and value to the non-monetary terms, such as the extensions of benefits (like COBRA) and other reimbursements for job search tools like LinkedIn Premium, outplacement services, or even executive coaching. Do not give up on these valuable asks.

Severance Impacts Unemployment

Finally, in many states the severance amount that you accept will reduce the amount of dollars you might be entitled to for unemployment benefits. So, this potential reduction in benefits should also be considered in the true net value of the severance amounts being offered.