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How to negotiate your severance package—and when to reject it entirely

There are usually strings attached to your layoff payoff. Here’s how to make your severance the best it can be.

How to negotiate your severance package—and when to reject it entirely
[Photo: AndreyPopov/iStock]

Being let go from your job is one of life’s top 10 most stressful events, according to the Holmes-Rahe Life Stress Inventory. And no wonder. In many cases, you not only lose your primary or only source of income, but you also lose important benefits, such as health insurance.

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In some cases, especially if you’ve reached a senior position at work or work at a company that provides them, you’ll be offered a severance package. This may include an amount equal to the continuation of your salary and benefits for a period of time, stock options, resources to assist you in finding a new job, as well as other provisions and demands. It may be presented to you during a meeting at which you’re released from employment, at an exit interview, or by mail.

Because most employees are “at will” and can be fired for any reason that does not violate labor laws or regulations, severance packages aren’t guaranteed. Typically, they’re awarded when there’s a contract that provides for them or when it’s the policy of the company to provide them, says attorney Matthew J. Kidd.

But what do you do if the offer you get is too low or has terms that are unacceptable to you? In some cases, you can negotiate the offer, but doing so has risks. Here’s what you need to know about pushing back.

Know your rights and risks

Because severance packages are generally not required by law, employers typically set the terms. So, if you ask for changes or make a counteroffer, that could be considered rejecting the package, and the offer may be withdrawn entirely. If an employer offers severance packages or if they’re part of a contract, that’s not likely to happen. However, each situation and its risk need to be considered individually, Kidd says.

It’s good idea to refer to any employment contracts or severance package provisions in your employee handbook. Hiring an attorney to review the agreement may also be a good investment, especially to determine if the agreement violates any state or federal labor or other laws, Kidd says. For example, the Worker Adjustment and Training Notification Act of 1988 (WARN Act) requires most employers with more than 100 employees who are closing a plant or undergoing a mass layoff to provide 60 days’ notice to employees. Workers over age 40 are protected by the Older Workers Benefit Protection Act (OWBPA), which requires a 21-day review period for severance packages.

Be aware of what you’re giving up

When Eileen Scully, founder of The Rising Tides, a workplace consultancy, was fired from a previous job, her former employer tried to get her to sign a severance agreement immediately. “They tried to force me into this confidentiality agreement that would have been a three-year binding agreement that wouldn’t let me not only never talk about them or their practices to a competitor but to anyone. I wasn’t allowed to talk to any of their clients or prospects that I had been working with. So, it was incredibly restrictive,” she says.

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Don’t be pressured into signing anything, especially if you’re giving up rights, Kidd says. For example, if you agree not to work for a competitor for an extended period of time or not to take legal action for wrongful termination, you could be giving up rights that are far more valuable than the immediate sum you’re being offered, Scully adds. Typical rights grabs may include extended nondisclosure and noncompete requirements, agreeing not to participate in legal action against the company, or even not allowing you to speak disparagingly about the company.

Get information

When career coach Kristi Andrus parted ways with a former employer, she thought she deserved more than the sum offered. The agreement had a very short effective date—essentially the severance pay and benefits clock started ticking from the time it was signed. She thought she could do better, so she took some time to review the offer. During that period, she contacted an attorney, former company employee, and the CEO and president of two other companies to ask for their input. “And it was interesting because all four of those people had really different red flags,” she says.

Better informed, she was able to bump up the payout significantly, including full pay and benefits for a little more than a year, plus her bonus. In addition, the effective date of her severance was negotiated to start after she had closed out all of her client work—in the initial offer, the two would have overlapped.

It’s a good idea to get as much information as you can before you negotiate, says David Klimaszewski, an attorney who focuses on employee benefits and compensation at New York City-based law firm Culhane Meadows. Companies, especially larger ones, are often reluctant to negotiate unless there’s a special circumstance, such as the employee possibly having grounds for a wrongful termination suit, he says. “If you can find out pretty much what the company’s policy is regarding these severance agreements, that helps,” he says.

Make a reasonable ask

The company likely isn’t going to engage in a lengthy negotiation over severance, so make a good-faith ask, Kidd says. Highlight your contributions to the company and the reason you’re asking for more, especially if you have extenuating circumstances, such as needing to relocate after a move you made for your job.

When you are determining your request, also consider that your severance will be taxable, so set aside an appropriate amount of it to pay the Internal Revenue Service as well as any state taxes due. Your severance may also affect your ability to collect unemployment benefits, so check with your state’s labor department or your attorney before you make a counteroffer or accept a severance package.

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Don’t be afraid to walk away

Ultimately, Scully rejected the restrictive offer and walked away without her severance pay, it may have hurt her ability to find a new job. While it may feel like you need the money, consider what you’re giving up in exchange carefully, she says.

“So, I walked away with nothing but, again, the main point being that I was more valuable without that than with the paltry sum they were going to put in my bank account, that was taxable,” she says.

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About the author

Gwen Moran writes about business, money and assorted other topics for leading publications and websites. She was named a Small Business Influencer Awards Top 100 Champion in 2015, 2014, and 2012 and is the co-author of The Complete Idiot's Guide to Business Plans (Alpha, 2010), and several other books

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