3 Pressure Points Executives Can Use When Negotiating a Severance Package

March 18th, 2022

In any negotiation, each party comes to the process with unique pressure points. As the name implies, pressure points are those factors and considerations that put pressure on a party to close a deal and, accordingly, make them more open to compromise.

Executives who enter into severance negotiations with their soon-to-be-former employers often think they have no leverage or cards to play when seeking a better package, recognizing that, in most cases, employers aren’t legally obligated to offer them anything. But the truth is that their employers likely have several pressure points that departing executives can identify and exploit to obtain more generous terms, greater compensation, and better benefits in their severance packages.

Here are three pressure points for employers that executives should consider when they (and more specifically, their attorneys) evaluate and respond to a proposed severance agreement:

1. Fear of Future Claims

No business wants the uncertainty, disruption, and potential financial or reputational damage that are byproducts of employment litigation. Employer misconduct claims cost American businesses $20.2 billion in 2021, according to a Vault Platform study. That’s why companies attempt to insulate themselves against claims for harassment, discrimination, whistleblower retaliation and wrongful termination.

In exchange for offering a departing executive severance pay and benefits a company isn’t legally obligated to provide, the business will expect the employee to waive and relinquish any future legal claims against the employer. Definitively shutting down the threat of such litigation is worth money to the employer. If the employer worries that the executive may have viable claims, paying for an insurance policy against legal action instead of paying lawyers and a potential judgment or settlement is a bargain.

Many executives, however, may not be aware that they have potential employment-related claims. When a company makes an employment decision for legally prohibited reasons, there’s usually a pretense. That pretense may not be readily apparent. That’s why it’s critical to consult an employment attorney before signing a severance agreement. Even the possibility that an executive may have a claim can up the ante for the employer and lead to a sweeter deal.

2. Fear of Future Competition

Similarly, a company may use a severance agreement as a way to limit the executive’s competitive activities after the executive leaves. Executives must tread with caution if presented with such provisions. Noncompetition and nonsolicitation clauses in a severance agreement are valuable promises to the employer, but can severely restrict the executive’s ability to pursue new opportunities if they’re too broad and restrictive.

3. Fear of Bad-mouthing

Departing and disgruntled executives may not have the nicest things to say about their companies or colleagues. Even without a lawsuit or claim, word of a company’s allegedly toxic or problematic work environment or practices can spread quickly among employees and job candidates. Companies are often happy to offer more severance in exchange for a non-disparagement provision that can keep both sides from bad-mouthing the other.

If you have questions about the terms of a proposed severance agreement or would like help negotiating the terms of your departure, please contact Halunen Law or call us at (612) 260-5383 for a free consultation.

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