Negotiating a Severance Package

Despite the difficulty of getting a soon-to-be-former employer to part with additional cash, there are items that can, and should, be part of severance negotiations.

By Dona DeZube | March 2009

As the number of layoffs has risen, the willingness of companies to negotiate severance packages has fallen off due to fears of creating inequalities among employees and the need to hoard cash.

"Given the exigencies everyone faces, what companies feel they’re able to give and what employees are getting are different now that what one would have seen last year," says an experienced employment attorney who represents large corporations. "It’s not that employers are less inclined to be kind, they’re just less able."

Negotiating a Severance PackageFederal law governing severance also comes into play, says Jeffrey Liddle, managing partner of Liddle & Robinson in New York. "A lot of employers are fearful to negotiate with an individual because there is at least some arguable justification that under (federal laws) what is actually paid to one individual must be then paid to another similarly situated individual," he observes.

If your company has an employee handbook that clearly lays out severance, you’re going to get what’s in the handbook, says Diane Pfadenhauer, an employment attorney and principal consultant at Employment Practice Advisors in Northport, N.Y. "The reality is that most organizations are going to do this in an objective manner, applying a formula to a group of employees selected for layoffs."

Despite the difficulty of getting a soon-to-be-former employer to part with additional cash, there are items that can, and should, be part of severance negotiations, says Robert Benowitz, a partner at Rick, Steiner, Fell & Benowitz, LLP in New York.

Start by protecting your most important asset – client relationships. Regardless of what your severance agreement says, many states take a jaundiced view of non-competes, according to  Pfadenhauer. "For example, California disallows them, so if you’re given a release that has a non-compete provision, take it to an attorney – not your friend the real estate lawyer, an employment attorney," she says. "You don’t want to restrict your right to work, but if the non-compete portion is unenforceable, do you want to wage that battle with an employer with deep pockets?"

Benowitz says he’s been successful in negotiating certain types of carve-outs from IT non-competes that related to clients the former employee worked with extensively before the layoff.

Case law in technology tends to be in favor of the former employee, Benowitz adds. "The courts are not as prone to hold up non-competes on the theory that technology is a rapidly changing field and therefore what was information that you didn’t want to divulged has been surpassed already."

Some courts also consider what you did before you came to the company that laid you off. "If you brought to the table the customers or clients, the New York courts have held you can take those clients when you leave, even if you’ve signed a non-compete," Benowitz says.

Architects, designers and developers will also need to make sure confidentiality agreements won’t prevent them from sharing past work products with potential employees. For example, you’ll want to be able to show a screen shot of a utility you developed. References are another area that’s important to talk about. "You need to know what the company will say in a reference, or get someone from outside Human Resources to provide a reference," Pfadenhauer suggests. If your company has a no-references policy, she adds, it likely only covers current employees, so once your boss moves on, he can provide references again.

If your employer is downsizing greatly, it can’t hurt to ask for any left-over equipment. "If you have a company laptop, ask for it,"Pfadenhauer says. "If you have a cell phone, ask for that. Just make sure that you do give things back if the employer says no, because you can’t hold things hostage to get your last paycheck."

Next, make sure to cover your personal assets by asking for reciprocal indemnification from any claims that could arise from your actions during your employment. "You could be getting millions in severance but in one lawsuit it could go down the drain if you’re not indemnified," Benowitz says. "You also want them to agree to advance legal fees if any claims arise."

Finally, in making any decision about severance options, consider the viability of your former employer. "I’ve seen situations where people go out on severance and the company filed for bankruptcy and the bankruptcy court orders the company not to pay pre-existing debt – and that includes severance," Pfadenhauer says.

And, while taking a lump sum severance payment may ensure that you actually get the money, it can also create tax liabilities by pushing you into a higher tax bracket.

In the final analysis, all three attorneys suggest seeking professional help when you face a layoff. Retaining an employment lawyer will cost around $2,500, Benowitz says. But, he adds, "It’s a small investment to see if you can get a lot more."

Dona DeZube writes about work and careers from Maryland.