5 Things You Need to Know When You’re Offered a Severance Package

You likely never expected to be offered a severance package on the day you were called into your supervisor’s office and it felt like your life had changed. Most of the time, losing your job is unexpected and you may or may not be adequately prepared for it. If not, this can be a stressful and emotional time. Considering, negotiating, and accepting a severance package should not have to add to your frustration.

A severance package is the pay, and possibly other non-pay benefits, that your employer may offer when your employment is terminated through a layoff or involuntary separation from the company. While employers are not legally required to offer a severance package, according to the Fair Labor Standards Act (FLSA), they often will. However, they do not do this just to be kind to their former employees. Often, it is a way to ensure that the employee being terminated will not speak ill of the company as a result of being terminated, whether implicitly or explicitly with a clause in the severance agreement, and they usually include a comprehensive release of all claims.   Additionally, some employees have contractual rights to a severance package based on a written contract or collective bargaining agreement.

Understanding what severance packages are, what should be included, and how to negotiate for more can help you feel more in control of your circumstances during this uncertain time, as you adjust to unemployment and begin your search for a new job.

1. What should a severance package include? 

Your severance package should include information about your financial compensation under the agreement—for example, how much you will be paid and how it will be paid—as well as how you will be compensated for your unused vacation and sick time. It should also include how and where to find unemployment benefits information, including COBRA, the health plan offered by The Consolidated Omnibus Budget Reconciliation Act of 1985, the federal statute which allows you to continue using the health insurance after your employment has been terminated.

Your employer is likely to include clauses and agreements which benefit the company as well. This may include how and when to return any company property you may be in possession of, and clauses in which you agree to keep certain proprietary information about the company confidential and not to speak poorly about the company after your separation. Your employer will likely also include an agreement that you will not pursue legal action against the company.

2. How is severance pay calculated? 

Knowing how your severance package was calculated is valuable information to help you determine if the package you are being offered is fair and, if not, how you may be able to negotiate for a more suitable severance agreement.

Severance pay is usually calculated based upon your regular pay. For employees who are paid hourly, it will typically be determined by multiplying your average weekly pay by the number of years you have been employed with the company. If your weekly take home pay is about $1,500 and you have worked at the company for seven years, your total severance pay would be $10,500. Salaried employees are often paid determined by the number calculated by multiplying your average two weeks of regular pay by the number of years you were with the company. If your average bi-weekly pay is $3,000 and you have been with the company for nine years, your total severance pay would be $27,000.

Other companies may simply offer to continue your regular salary for a period of time after your separation from the company. Your employer may either pay you a lump sum or pay it out to you over a period of weeks or even months. 

3. How can I negotiate the severance package offered to me? 

If you feel the severance package you have been offered is deficient or unfair, you may have the option to negotiate for a more suitable agreement. If you choose to do so, you should take the time to prepare. You can do this on your own or with the help of an employment attorney.

A few factors to consider while preparing your counteroffer are: how long you have been with the company, what value you have brought to the company, whether they are planning to terminate your position permanently or hire someone for a lower pay rate, and how long it may take you to land a new job. If you are aware of the amount other colleague have been offered in a severance agreement, this may also be relevant to your negotiations.

The most important factor is whether the termination of your employment is motivated by a protected reason such as age, gender, race, ethnicity, sexual orientiation, disability or medical leave or for retaliation for any protected complaints of exercise of your rights to protected leaves or requests for accommodations.  If you think you are being terminated for an unlawful reason, you should contact an employment attorney. These factors will help you or your Attorney leverage your value with the company to  help  thenegotiatiations  for you to at least cover your living expenses until you find a new job.

4. What if my severance agreement does not include health insurance? 

The Consolidated Omnibus Budget Reconciliation Act of 1985 is the federal statute which allows you to continue using the health insurance through COBRA after your employment has been terminated. Most employers are required to comply if there are at least 20 employees at the company.

According to this law, you are required to pay the full premium that the employer pays, which may be less than the cost of purchasing an individual health insurance policy. This coverage may last for up to 18 months, given that you do not begin working at another company who offers health insurance. 

5. In California, your severance package will not affect your unemployment benefits 

In some states, receiving a severance package can may affect your ability to collect unemployment benefits. However, if you are located in California, receiving severance pay does not affect your unemployment benefits at all. 

If you have been terminated or offered a severance package during a layoff or termination, make sure to protect yourself by understanding severance packages and your rights as an employee who is being involuntarily terminated. The attorneys at V. James DeSimone Law have worked with countless clients in LA, Orange County, San Bernardino and Riverside to advise them on their rights as an employee and help negotiate severance packages in appropriate cases.

To schedule a consultation, you may call us today at (310) 693-5561.

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