5 Issues To Consider In a Proposed Severance Package

March 2nd, 2022

Unexpected or unwanted career transitions can be a time of anxiety and opportunity. If you’re an executive or other high-ranking employee who finds yourself asked or forced to leave your current position, it’s important to make smart, informed decisions about how to do so. This includes careful consideration of any proposed severance package from your soon-to-be-former employer.

There’s much more to a severance package than how many weeks or months of pay you’ll get, as important as that is. A severance agreement is not only about what your employer gives you, but also what the organization expects in return. If you’re not careful or fail to consult an executive and professional severance attorney before signing on the dotted line, you could lose out on benefits, forfeit rights, or limit future career opportunities.

Here are five elements of a severance package offer that should be on your radar:

Distribution of Severance Pay and Clawback Provisions

Severance pay is understandably the centerpiece of any severance package. In addition to the amount of compensation, you need to know how and when you’ll receive it. Will it be in a lump sum or will it come in installments? Either option comes with tax implications you should discuss with your attorney or accountant.

In addition, look out for any clawback provisions that allow the employer to stop making payments or demand that you return money already paid if the company were to allege that you breached the agreement. Such allegations often involve non-competition or non-disparagement provisions, as discussed below.

Paid Time Off and Vacation

In addition to severance pay, any earned but unused paid time off or vacation days should be part of your package. If you incurred any unreimbursed business expenses, the agreement should account for that as well.
Insurance

Under the Consolidated Omnibus Reconciliation Act (COBRA), you have the right to remain on your company’s health insurance plan for up to 18 months. One caveat: COBRA premiums can be astronomical if the employer doesn’t agree to continue paying its portion. Explore whether your employer is willing to contribute to your COBRA premium. If your employer provided you with life or disability insurance, ask whether your coverage will continue until you obtain a new job.

Restrictions on What You Can Do and Say

Since it’s likely your employer is under no legal obligation to offer you severance, it will probably want something from you if it does so. This may include non-competition, non-solicitation, non-disclosure, or non-disparagement provisions that limit what you can do or say after you part ways. Depending on your career plans, such restrictions could diminish your ability to seize desirable employment or other opportunities.

Waiver of Claims

Your employer wants your severance agreement to be a final and definitive parting of the ways. The company will ask you to give up any potential legal claims you may have against the company, such as those alleging discrimination or harassment. Make sure you understand the real reasons for your termination and discuss any concerns with an employment attorney before waiving your rights to pursue such matters.

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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