Ideally, your company will give you severance pay which usually means one week’s pay for every year that you worked there. But they’re NOT obligated to do so. There’s no federal law that your employer must give you anything upon termination except for what they already owe you, like unused vacation time and sick days.
You don’t have to sign a severance agreement, ever. If you’re unsure about anything in the document they give you, talk to a lawyer before signing.
In this installment of the Layoff Guide Series, I’ll dive into what benefits might be included in a severance agreement, what rights you give up when you sign, and how to negotiate for more. While you can’t get your job back, you can still protect yourself.
Note: I’m not a lawyer and this is not legal advice. The information in this article is intended to help you understand severance agreements and your rights (whether you decide to sign or not).
Typical benefits in a severance package
When an employer offers a severance package, they’re doing so to avoid legal action or retaliation from laid off employees. For most of us, if we’re given a package that includes pay, benefits, and resume services, we’re far less likely to take to company review websites like Glassdoor and leave negative feedback.
Here are five of the most common severance package benefits:
Severance pay
Typically, companies will offer 1 or 2 weeks worth of pay for each year that you worked for the business. This can be paid out in a lump sum or over a period of time. These two options have their own conditions though, like changing your tax liability or affecting your ability to apply and qualify for unemployment insurance. I’ll discuss unemployment insurance later in this series.
Extended health insurance benefits
Your company may offer extended health insurance benefits. This is a huge help while hunting for a new job, especially during a pandemic. Coverage can be a continuation of your existing health plan for a few months (as if you hadn’t been let go) or the company might pay for all or part of your COBRA health coverage. We’ll get into health insurance later in this series.
Outplacement services
These are services that your employer pays for to help you get another job quickly. Services can include resume and cover letter writing, job search and interview coaching, and even guidance on negotiating salary.
Stock option vesting
If your company offers employee stock option plans, you may have options that haven’t vested yet. When you leave the company you forfeit any unvested stock options. Severance agreements can include accelerated vesting that lets the employee exercise all of their unvested shares or sell them back to the company.
Letter of reference
An easy addition to a severance package is a letter of reference that can be used while job hunting. Not only do you have the letter itself, but it also serves as proof that you weren’t fired for cause.
Signing away your ability to sue, find a job, or receive unemployment
As I mentioned earlier, employers don't give severance packages solely out of a sense of goodwill, though that might be part of their reasoning. They’re giving you these benefits in exchange for releasing them from any type of legal liabilities.
When you sign an agreement that includes a release waiver(s), you’re agreeing to not sue the company for age discrimination, wrongful termination, defamation, or disability discrimination. You’re likely waving your chance to participate in any class action lawsuits too.
If you’re 40 years of age or older, you should always tell your employer that you’re going to review the agreement in your own time before signing. You’re protected by the Older Workers Benefit Protection Act (OWBPA) which requires employers to give you at least 21 days to consider the severance offer. It’s your right, so try to speak with an employment lawyer to identify any problematic parts of the agreement.
Nondisclosure and noncompete agreements
Employers frequently ask for a signed nondisclosure agreement (NDA) in exchange for severance pay or other benefits. NDAs are legally binding agreements covering confidential information. They can also sometimes include language that the employee agrees to never speak poorly about their former employer.
Noncompete agreements can be far more problematic. An employer can offer you a hefty severance package in exchange for your signature on a noncompete agreement. These clauses limit your ability to work for competitors of your former employer or start a business that would directly compete with your former employer.
Noncompetes have to have a time limit, usually one year. They are unlikely to be enforceable if the timeframe is listed as indefinite or if the geographical area covered in the agreement includes all of the United States. If you work in a niche industry with only a few vendors, this could make it impossible to find another job.
Making you sign a resignation letter
When an employee resigns from a company, they typically don’t qualify for unemployment insurance. If your employer includes anything in your severance agreement stating that you’re resigning from your position, rather than being fired or laid off, do not sign it. This will make it very difficult for you to get unemployment insurance that will help you pay the bills while you’re job hunting.
A signed resignation letter can be used against you if you decide to pursue legal action in the future for discrimination or for being fired. When you’re laid off, you’re most definitely not resigning. Document your assertion to HR that you’re NOT resigning over email and BCC your personal email address.
Negotiating a severance package
It may feel like you’ve had the rug pulled out from under you when you’re unexpectedly laid off. But you're not completely powerless. You can still negotiate to get more from a severance agreement than was originally offered.
If you’re leaving the company on good standing and can demonstrate your accomplishments in your role, leverage those successes! Tell your HR representative (and follow up with an email) how you brought in a large client, completed projects ahead of schedule, collaborated with another department on important initiatives, or acted as a leader on your team. You can increase your severance pay significantly.
If your company’s standard severance agreement template doesn’t include a letter of recommendation, ask them to add one before you sign. If there’s a non-compete clause that you think will make it hard to find another job, ask them to amend it or even remove it altogether. Ask for your vesting period to be brought forward if you have unvested stock options.
There’s a chance that your employer will respond poorly to negotiation. But just like when you’re negotiating your employment contract before you’re hired, it’s up to you to decide which risks to take. You may end up with more than you would have otherwise.
What may happen when you’re not on good terms
If you have good standing with your employer at the time of a layoff, you’re in a better position to negotiate. If you’re being let go for performance issues though, you’re more likely to to be told that you only have two choices:
Sign the severance agreement right now and get whatever they offer you.
Don’t sign the agreement now and get nothing at all.
Unfortunately, an employer is free to condition severance benefits on an immediate signature, even if you’re protected otherwise by regulations like OWBPA. Legally, they don’t have to give you any additional benefits anyways.
Of course you can decide not to sign any agreements at all, which means that you still have the right to sue or seek government action for discrimination or wrongful termination. Your severance agreement will include a release waiver but it’s only valid if it’s voluntary, your employer can not require or coerce you to sign. Your employer is also taking a risk by revoking their offer if you have grounds for legal action.
Find out your next employer’s severance package BEFORE you accept a job offer.
Negotiate in advance for your next job
Leaving a stable job for a new employer is a risk, even if it’s worth it. Use this as leverage when you receive a job offer, especially if the job requires you to move to a new city. Before you accept a job offer, negotiate your severance agreement upfront.
Your employment contract can address a future severance agreement. If you’re moving locations, ask to include a clause to pay for your move back to your original city if you’re laid off or fired without cause. You may even be able to negotiate a larger severance pay if you stay for one year, for example. You can also ask to adjust any NDAs or noncompete agreements during your initial job offer negotiations.
You’re going to have to make some concessions in order to secure your severance package early, so remember this is a negotiation, not an ultimatum. It will be easier to negotiate severance ahead of time if you were sought out by the company and know that you’re considered a valuable addition to the team. As with any negotiation, take a collaborative tone.
Even if you decide not to attempt a negotiation at this time, you should still ask for details about their severance agreements ahead of time. Request that they send you a copy of the employee handbook before you sign a new employment contract.
Final Tips:
If your negotiation doesn’t go well, you can walk away without signing anything. Because if they take away their severance package offer, you have no reason to release them from legal liability. You don’t work for them anymore. They can’t fire you again for not signing.
Always get a copy of your signed agreement. Make sure it includes both your signature and the signature of your company’s signatory, often the Head of HR.
If nondisclosure or noncompete agreements will make it hard to find another job, it might be better to leave without a severance package. Short term benefits can’t make up for long term unemployment or the end of your career in your industry.
If you’re unsure about anything in your severance agreement, tell your employer that you will be speaking with a lawyer first. They may not like it, but you have to protect yourself and your future employment.
Check out the rest of the Layoff Guide:
How to Take Care of Yourself, Your Finances, and Your Health
Understanding Severance Agreements
Can I Earn Money While Receiving Unemployment Benefits