New York Employment Lawyer Blog

Over the past two days, I put up two posts that concerned severance agreements. Each post highlighted two important points to consider when reviewing a severance agreement. This is the last post in this series about severance agreements and it includes five more important points. Here they are:

1. Exercise Your Vested Stock Options

If you were provided stock options, make sure you have an opportunity to exercise them. Typically a departing employee will have 90 days to exercise vested stock options before they expire. But make sure this is clearly stated in your severance agreement and you can ask to extend the 90-day period.

2. Accelerate the Vesting Schedule for Unvested Options or Equity Grants

Executive compensation often comes in the form of unvested stock or options. For example, a company may offer an executive 300 shares of company stock and the shares will vest over three years. If you have unvested equity or options, you can ask your company accelerate the vesting date so they vest before you leave the company.

3. Convert Outplace Services into Cash

Companies often offer outplace services to departing employees. If you don’t feel that the outplacement service will provide a benefit, then ask your company to provide you with the cash value of these services.

4. Vacation Pay

Some companies allow an employee’s unused vacation time to accrue over time. Check your company policy manual or ask a human resources representative about this and if your have accrued vacation time, ask to have it paid in cash or ask to stay on the company payroll until the vacation time is used up.

5. Determine Why You Were Let Go

You may have leverage to negotiate a much better severance package if your employment was terminated illegally. Your termination may be illegal if you were let go for any of the following reasons: age if you are over 40, gender, race, religion, national origin, sexual orientation, disability or serious illness, sick family members, pregnancy, jury service, or for complaining about sex harassment, employment discrimination or failure to pay overtime. If any of these factors are at play, you may have grounds to substantially increase your severance package. If you sign your severance agreement, you will waive your rights permanently. If you believe that you were unlawfully terminated, you should consider contacting an employment lawyer.

Yesterday, I posted about two key points in a severance agreement. The first point was that you need to understand exactly what you are getting and what you are giving up by signing the severance agreement. The second point explained that the money portion of a severance agreement is usually expressed in terms of salary or pay over a period of time such as "your severance pay will equal two months of your salary...." In this post, I add two more important points to be considered in evaluating your severance package:

1. Health Benefits

Your employer will be required to offer you COBRA benefits. COBRA refers to a federal law (Consolidated Omnibus Budget Reconciliation Act of 1985) that requires companies to offer health insurance to terminated employees for 18 months at the corporate rate. For example, if you currently receive health benefits that cost $500 a month through your employer, your company is required under COBRA to offer this same health insurance policy to you at the same price of $500 a month for 18 months. Many severance packages include an offer to make your COBRA payments for a period of time or simply continue your existing health benefits for a period of time and defer the start of the COBRA period. Check your severance package to see if your company has offered to either extend your health benefits or make any of your COBRA payments. Remember that you can ask your employer to help make these payments for you as part of the severance package.

2. Unemployment Benefits

If you are about to lose your job, you are probably very interested in obtaining unemployment benefits. Typically, a person is only entitled to unemployment benefits if they are laid off due to a lack of work. A person who is terminated for cause or quits is not entitled to benefits. It is not uncommon for companies to challenge a former employee’s request for unemployment benefits on the ground that the employee was fired for cause or poor performance. You can make sure this does not happen to you by including the right language in your severance package. Obtain an agreement that your employer will not contest your right to unemployment benefits. In order to do this, add a sentence to your agreement with language similar to this: “It is agreed that [You] had been laid off for lack of work (or restructuring or downsizing etc…) and that [You] is entitled to receive unemployment benefits and X Company agrees that it will not contest any claim for unemployment benefits requested by [You].”

There are several other important points that will be covered in a subsequent post.

A severance package is designed to ease your transition out of the company. Your employer wants to make sure you leave quietly and you want to obtain a cushion to hold yourself over until you find a new job. The points below are important to anyone trying to evaluate their severance agreement.

1. Understand the Quid Pro Quo

The quid pro quo of a contract is the heart of the deal – the exchange of value. In reviewing your severance package, you need to understand what you are getting and what you are giving up. In most severance packages, you will be receiving a payment of money, possibly some health care coverage, stock options, and other things of value in exchange for your promise to leave the company and waive your right to sue them for anything or say anything bad about them. That is usually the quid pro quo of a severance package. Make sure you understand exactly what you are getting and what you are giving up.

2. The Money

Most every severance package contains a promise to pay money. Typically, the money is paid out as salary over a period of time. For example, your severance agreement might say that you will receive your salary for three months after your last day in the office. The money component of a severance agreement is almost always discussed in terms or weeks or months of a person’s salary. Be sure to check your agreement so you understand how much money is being paid to you. Remember, you can always ask for more money. If your severance package states that you will receive three additional months of salary after you leave, you can always ask them to increase the offer from three months to six months. You don’t need a reason for asking for more. But if the company asks why you want more money, you can say that you need more because you expect that it will take you more time to find a job.

One of the biggest obstacles to negotiating severance pay is workplace misconduct. Typically, if misconduct is discovered by your employer, even if you are being let go for reasons unrelated to your performance, you will not be eligible for severance pay.

If you failed to pass on a benefit to your employer (i.e. if you pocketed or diverted company funds) or if you competed with your employer during your employment, you should not expect any severance pay. In fact, you should find a lawyer, because you could be sued by your employer for breaching your fiduciary duty. Moreover, if you were repeatedly disloyal throughout your employment, your employer has the right to seek disgorgement of compensation, including salary and bonus, for the periods during which you were disloyal. This rule, known as the faithless servant doctrine, is extremely harsh. It extends to almost any breach of an employee's fiduciary duty, including mere breaches of confidentiality, and does not require proof of harm to one's employer. Also, if you are paid by your employer in installments which are not task based, the court will not distinguish between which portions of your compensation were paid in violation of the faithless servant doctrine - you will have to pay all of your salary back for the period of disloyalty.

If you have been disloyal to your employer, and if your employer is aware of it, being denied severance pay may be the least of your worries. Many employees assume that competing with one's employer is merely terminable but not unlawful. The average employee misundertands the risks of unfaithfulness - don't fall into the trap.

With so many people losing jobs, I have spent a lot of time talking to people about severance packages. After reviewing so many cases lately, there are a few key points that surface and people should be aware of them when considering a proposed severance package.

Employment Discrimination

First, don't sign the severance agreement if you have been terminated due to employment discrimination. If you sign the severance package, you will waive your right to bring an employment discrimination claim. Instead of signing the proposed severance agreement, you should negotiate for more severance pay. As an example, I reviewed a proposed a severance agreement for a client who I will call Ralph (not his real name). Ralph, was in his 60s, and he had worked for the company for about 12 years. He had been doing a great job, but he was told that the company needed to cut back and had to let him go. They also said his performance had been weak lately. But, the day after Ralph was fired, a younger man was sitting in his chair doing his job. And Ralph's performance was not weak, in fact, it was better than ever. Ralph hired my law firm and we negotiated a better deal using the facts that indicated a viable age discrimination claim.

Unemployment Benefits

People often assume that their employer will not contest their request for unemployment benefits. Remember, your company can dispute your request and argue that you were fired for poor performance or even allege that you resigned. Rather than take a chance on a future battle over unemployment benefits, ask your company to include a written promise not to dispute your claim for unemployment benefits in the severance package. It is a non-monetary concession that companies are often willing to provide.

Health Insurance Benefits

If your employment is terminated, most companies are required by COBRA to allow you to stay on their health insurance plan for up to 18 months or more. But, the employee must pay the insurance premiums and these can be costly. If you are offered a severance package, you should ask the company to pay your health insurance premiums for a few months. For example, if you are offered three months of severance pay, ask the company to include three months of COBRA payments as well.

These are a few common situations that arise in severance pay negotiations. If you need assistance with your severance package, give us a call.

This is a very hard question to answer. I usually ask a few questions before providing a response - do you want to? Why? The first thing you need to do is look in the mirror and ask why you want to leave. If you can convince yourself (or maybe your spouse or another trusted person in your life) that you are not being treated fairly and need to leave, then you should start to plan a departure. Don't make a hasty decision. With few exceptions, you can't take back a resignation, and if you have access to sensitive company information, your departure may be hastened if your employer perceives any threat of disloyalty.

Practically speaking, the problem with resigning is that the law does not encourage it. With few exceptions, a resignation means forfeiting your right to unemployment, recovery for having to leave the workplace due to harassing behavior, entitlement to any unpaid bonus compensation (even earned) and/or a severance payment. Why are people forced to endure unfairness? If I had a dollar for every time I answered this question, I'd be a rich man. Public policy encourages employment, even if this creates hardship for some.

If you must leave the workplace, consult with an attorney about the best way to go about it. If you are leaving due to workplace hostility, you will need to know (1) what you are allowed to remove from the workplace, (2) what you should say/do on your way out and (3) what type of treatment and compensation you can expect from your employer after you resign.

People want to know how their severance pay was calculated.  Some have asked if I know the formula.   A formula does not exist.  Severance pay is unregulated.   Companies can pay whatever amount they want, including zero.  

Back in the pre-recession days, companies would consider a person’s years of service and their rank or position in the firm when setting severance pay.   But now, the gloves are off.   Today, there is only one factor in determining severance pay – what is the lowest amount possible that will induce a person to waive their rights.   Companies are bargain hunting.   They want your waiver and they want it for less.   They want you to go quietly and cheaply.   But ultimately it is up to you – you don’t have to sign the agreement.   You can say no and that might be a good way to test the company to find out what they are really willing to pay.   You can’t get a good severance package unless you are willing to walk away.   Most people, however, don’t have it in them to push back, they just take the first offer.   Only the shrewd get the really good deals.   

One of the first things I look for in a severance agreement is a non-compete clause.   They should always be removed – or if the company insists on keeping the clause in the agreement, you should either not sign  it or make sure you are paid handsomely for it. 

These clauses are sneaky because people often do not notice them.   Worse, courts may actually enforce a non-compete agreement if extra money is paid for it – even a small severance payment can count.  

Courts typically are reluctant to enforce a non-compete agreement against a person who was terminated.   But, if the non-compete is part of a severance agreement, then the court is more likely to enforce it.  So if you are reviewing a severance agreement, make sure yours does not include a non-compete clause.  If your severance agreement includes a non-compete clause, ask your company to remove it.  Many companies will remove them if you ask.   If the company will not remove the clause, then think about walking away because it might not be worth signing it.  

People call us almost daily asking for help with their severance pay agreements.  Many of them just want to know how to handle the matter themselves because they don’t want to hire a law firm.   If you want to handle your own severance agreement, here are three things you need to understand.  

1.  You Have No Legal Right to Severance Pay

Companies are not required to offer severance pay.   There is no legal formula or standard for severance pay.   Companies can pay whatever amount they want or none at all. 

2.  Your Company Wants Something From You

Companies offer severance pay for one reason only – to get you to sign a waiver giving up your right to sue them or cause problems.   They are paying you to leave quietly.  

3.   Reality

Today, in this recession, most companies take a hard line with severance pay offers.   Often you face a take it or leave it situation.   Typically companies will not materially alter the agreement unless you have a genuine legal claim.   If you have a real case of employment discrimination or sexual harassment of other claim, you can substantially increase the severance pay out.   Most people, however, do not have a case and without real leverage it is tough to negotiate an substantial increase in severance pay.

I have screened plenty of calls from the recently terminated, and by far the most common inquiry involves a separated employees’ right to accrued vacation pay. My answer – it depends. If your employer has a monthly vacation accrual policy, you are entitled to a prorated share of your annual entitlement based on the number of months worked prior to your termination. However, many employers include disclaimers which nullify the benefit upon termination. Look closely for these policies – if they are in your employment manual, you don’t get anything.

This is not a matter of pocket change. Some generous employers allow for rollover of vacation days, and employees can accumulate a substantial reserve of accrued vacation days. I have a friend who made a down payment on an apartment with his accrued vacation cash out. Don’t leave any money on the table. Accrued vacation time should be the first benefit you seek in your severance payment negotiation, followed by any unpaid overtime wages.

As unemployment reaches record numbers and more people are considering severance packages, the EEOC has just published a checklist for employees. The document is entitled "Employee Check List: What to do When Your Employer Offers you a Severance Agreement." Click here to see the checklist. Tell a friend. It is a good resource for people who are trying to make sense of their severance agreements.

The EEOC did miss a key point in their checklist. Sometimes employers will enhance the package by increasing the amount of money or extending the period of paid health insurance coverage and employees should not be afraid to politely ask for an enhancement. Simply asking your employer to add an extra months pay or health insurance is a good idea. If you never ask, the answer is always no. We have helped countless people increase their offers just by asking. Granted, these days companies are more reluctant to increase the offer, but it happens. In fact, this week we increased the severance packages for two of our clients by nearly 50%. Both of these clients had potential employment discrimination claims and that really helps negotiate an enhanced offer and companies do not want to get caught up in employment suits.

Today's Wall Street Journal has an article by Anna Prior that starkly details the cold reality facing hundreds of thousands of people today. Companies are cutting back severance pay to bone and they are less willing to negotiate. Today, it is take it or leave it. We see this every day at our law firm. In the past, companies were more willing to enhance severance packages by increasing the amount of pay, extending health care and other forms of compensation. Today, some companies will offer modest enhancements, but typically only when the employee has a potential claim.

I speak to people on a daily basis who contemplating severance offers and there are two common misunderstandings. First, most employees do not have a legal right to keep their job because they are employees at will. Second, people do not have a right to severance pay. Severance pay is not a legal right in the United States unless you have an employment contract that creates this right.

As Ms. Prior points out in her article, certain senior executives can increase the offer if the company requests a non-competition clause. In the past, we have obtained substantial increases for executives in this situation, but today it is more difficult. In some cases, the money offered in severance does not justify the restrictions imposed by a non-competition clause. The clauses are enforceable and people should think twice before signing them as they can keep a person out of their field for years. Before signing one, make sure you narrow it as much as possible and be sure you are well paid as you are basically agreeing to run in the race with one leg.

In my opinion, the best way to survive in today's economic climate is to save money while you have a job and build your own severance package in your bank account because you cannot rely on your company. Also, there will be a small minority of people who can extract an enhanced severance or settlement from a company because they have a legitimate employment discrimination or harassment claim that can be used as negotiating leverage. Most people, however, will not have a genuine employment claim and they will not have leverage to negotiate.

MPG, an international media and advertising company, has laid off a group of workers in New York City. MPG has offered the workers a severance package but the workers have challenged three aspects of the package: (1) the amount of the severance pay, (2) a one sided non-disparagement clause that protects only the company and not the workers, and (3) a one sided waiver of the right to sue that only benefits MPG. These are common issues in severance pay negotiations. Here is the press release issued by the workers union.

At our employment law firm, we frequently represent individuals who are in a similar situation. The three items above are often the subject of severance package negotiations. People want more money and they want the terms of the severance agreement to be mutual - so they are protected too.

In my opinion, executives and employees should first focus on the money end. You cannot pay your bills with a nicely tailored severance agreement. It is all about the money, especially in these tough economic times. Increase the money and benefits and then focus on the terms of the agreement.

Companies typically balk at mutual non-disparagement clauses because they claim that they cannot control what their employees will say. But this argument can easily be countered by offering to narrow the application of the non-disparagement clause to a certain group of executives and employees who the company can control. Also, employees should insist that any waiver or release is mutual. After all, if an executive or employee is promising not to sue the company, the company should promise not to sue the employee. The point of a severance agreement is to end the employment relationship so a good agreement should put an end to any future disputes - for both sides.

Company's used to offer fired employees a severance package to soften the blow and help people survive until a new job is obtained. But companies are cutting back on severance and employees are often left with nothing. In France, workers are fighting back with threats of violence.

A new severance negotiation tactic is emerging in France. Disgruntled workers facing lay offs are gaining leverage with threats to destroy factories or equipment. 53 workers slated for termination at JLG, a French manufacturing firm, surrounded company cranes with gas cylinders and kindling and then went to the negotiating table. Their prior efforts to obtain severance peacefully failed, but when they installed the gas cylinders the company offered the workers a $42,000 severance package.

The JLG workers were following a group of fired Nortel employees. The Nortel employees demanded severance payments, but the company refused. The workers have now threatened to blow up the factory if they do not get severance. Nortel is still negotiating with the workers. Also, managers at New Fabris, a French car parts maker, are facing hostile threats from a group of fired workers who are demanding severance payments.

Here in America I have not heard of employees banding together and threatening harm in order to obtain severance. At my law firm, we get calls everyday from employees who have been fired and offered little or no severance. Most of the time, we cannot help them because the laws in America do not provide employees with rights to severance. Many European countries, by contrast, have laws that require severance payments, but not in America.

Lately, I have been hearing stories from employees who are being intensely pressured by their employers to sign severance agreements. Just the other day we had a high level executive who was handed a severance agreement that said she had 21 days to review the agreement. But, the companies HR department told the executive that she only had one day to sign the agreement or face immediate termination and no severance. Luckily, this executive hired us and we called the HR department and they backed off right away. But, how should you handle this situation if it happens to you? First, if the agreement says that you have 21 days or another time period to review the agreement, you should hold the company to its word. They made a written promise to you and you should follow what they say in writing. Take your time to review the agreement and find an experienced employment lawyer to give it a look if can. But do not let your company pressure you into signing it prematurely. Hold your ground. Also, don't be afraid to politely ask for more money or benefits or both. Simply ask if the company would consider increasing the payment and benefits offered.

Top 5 Questions and Answers about Layoffs and Severance

1. Will My Employer Revoke My Severance If I ask for More?

Answer: Not likely so long as you ask nicely and make reasonable requests. The company has offered severance because it wants to keep things as smooth as possible and a polite request should not jeopardize the offer. In fact, in the ten years that I have been representing employees, I have never heard of anyone losing their severance agreement simply because they asked the company to increase or modify the severance offer.

2. Do I have a legal right to get a severance package if I am laid-off?

Answer: No. The only people who have a legal right to severance payments are top executives who have written employment contracts. That is why you hear about the big shots leaving with golden parachutes. But most everyone else is an employee-at-will and sadly there is no legal requirement for severance. Severance payments are usually voluntary.

3. Can I sue for wrongful termination because my company had no reason to fire me?

Answer: Not likely. Most everyone is an employee-at-will and that means exactly what it says. You can quit for any reason and likewise your employer can fire you for any reason. Basically, you have no right to your job. It can be taken away anytime for any reason. The only real limits are the laws that prohibit discrimination, illegal harassment and certain narrow types of retaliation.
There are other laws that limit an employer’s ability to fire employees such as the Family Medical Leave Act. A few fortunate employees out there have written employment contracts that give them more protection but those are rare. Most everyone is an employee-at-will.

4. I am worried that I might get laid-off, what should I do now to protect myself?

Answer: A. The best thing you can possibly do to protect yourself has nothing to do with the law. You need to make yourself valuable so that you can easily get another job. Start networking, update your resume, keep your eye-out for other jobs, and acquire the skills that companies need.
B. Prepare to be fired by bringing everything that you might need in the future out of your office and take it home. [Don’t take anything that is not yours.] If you are fired, you might be led out of your office by security and you may never see that list of key professional contacts again.
C. If you think you are being discriminated against and have evidence of discrimination then make a copy and take it home. For example, if you are in your 50’s or 60’s and things are being reshuffled in favor of younger employees, you might want to keep track of how things looked before and after the shuffle because that might help prove age bias.

5. How Can I Tell if my Severance Package is Fair?

Answer: There is no magic severance formula or legal severance requirement. There are ratios that some companies follow but those have changed and they cannot be relied upon these days. The ratios vary anywhere from one month of severance for each year of service down to one week of severance for each year. Usually the higher up you are in the company the more you will get. Lower level workers will get one week per year while a top executive might get one month per year. But this is an old idea that really is not followed with any regularity today. Some companies still do follow similar formulas and many do not. There are no laws that govern the amount of severance paid to terminated-employees so companies are largely free to offer any amount they want so long as they do not discriminate. Also, a large factor is the financial health of the company, so today many companies are offering less severance pay.

Lately I have had many clients come to me after being laid off from jobs that they have worked at for over twenty years. These people started from the bottom and worked their way up. Most of them began their careers straight from high school and subsequently do not have college degrees. After giving their best years of their life to their employers, they are usually left with a paltry severance offer. After seeking legal counsel, the severance offers usually increase substantially. However, these people are still left with no degree and no prospects for any future jobs that require such degree. In addition to providing severance, it would be commendable for these large and prosperous companies to pay for schooling for these loyal former employees.

At our law firm in New York, we help executives and employees negotiate severance packages. Typically the company will offer the executive a severance package and our goal is to improve the package. We use an incremental approach. At first, we coach the executive to help him negotiate a better package and we stay in the background. Often it is better if the lawyers stay out of sight.

In coaching an executive, we help them understand the dynamics of the negotiation. The executive is often keyed into the wrong factors as they tend to get caught up in the politics and personality issues at play. We identify potential legal and business issues that will motivate the company to increase the severance package. Then we work with the executive in approaching the appropriate person at the company. If all goes well, we are able to operate behind the scenes and help the executive enhance the severance package so that the transition to a new position is smoother and less stressful on everyone. Our goal is to keep the process professional and as smooth as possible so our clients can move on with their lives. Sometimes it is necessary to take stronger steps and that will be addressed in a future blog entry.

Severance pay is a misunderstood subject in New York and around the country. Companies are not legally required to pay a departing employee severance, but companies often do to make the transition smooth. Severance pay (or severance packages) is a custom that has developed. Employers are often willing to pay a departing employee severance pay to prevent law suits and the disruption of business. But there is no legal right to severance pay unless you have an employment contract that says you do.

The amount of severance a company is willing to pay is based on several factors: (1) if you have strong relationships with people or companies that are important to your employer, (2) how long you worked for the company, (3) how much you made, (4) if you could sue your employer for employment discrimination, and (5) the company's severance policy. Another key factor is the employee's ability to negotiate. Employees often take what the company initially offers without even trying to get more. Often, an employee can increase the amount simply by asking. It depends how you ask and what reasons you can give, but, if handled correctly, an employee may be able to substantially increase the severance package. The Ottinger Firm has helped many people negotiate better packages.

I recently had a client come to me regarding a severance agreement. This client had worked for a large company for nine years initially. She then left for three years to care for her child, and returned to the company for another ten years. After being told she was terminated, the company offered her ten months severance, which, according to the employer, reflected her length of service with the company. She had asked them to reconsider, as she had actually worked for the company for almost twenty years. However, the company would not budge. Therefore, she came to me to see what I could do for her.

I met with this client for over an hour, in an effort to understand her duties at the company, why she was terminated, her performance, and other important factors. During this time it came out that this client was clearly a victim of racial discrimination. During her years at the company, she had been referred to as “colored” and told she was inadequate because of her race. However, this client did not want to sue, she merely wanted what she felt was owed to her.

Following our meeting, I sent a one page letter to the company, asking them to reconsider their position, in light of my client’s twenty year history and in light of the racial discrimination she endured while at the company. Within one week (and many phone calls), I received a revised separation agreement, reflecting my client’s twenty years of service. In return, my client agreed to write a memo reciting who at the company used racial slurs. I can only hope that this company will be using this memorandum as ammunition to terminate this other employer.

The moral of this story is twofold. First, lawyers do not always complicate matters. Rather, on certain occasions, lawyers can simplify matters and get results when the employee is not able to. Second, when speaking with a lawyer, make sure to tell the whole story. In this case, I would probably not have been able to get such a favorable result had I not included the racial discrimination aspect.

I recently had a married client come to my office requesting that I negotiate a severance package for her after she was terminated. This client felt that she had endured hostile work conditions while at her job but did not want to sue her former employer, as she wanted to put this ordeal behind her as quickly as possible. While at her job, this client was given a blackberry and a work email account.

After I contacted her former employer to negotiate severance pay for her, her former employer’s counsel forwarded to me very explicit emails that my client had received from a tenuous work-related contact. Although these emails came through my client’s personal email account, and were not work related, these emails were still considered the employer’s property, as they were retrieved and sent from the employer’s computer and blackberry. It was obvious to me that the employer wanted to dissuade my client from suing them and was going to go to great lengths to embarrass her and possibly break up her marriage to accomplish this goal.

While I explained to the employer’s counsel that such emails were wholly irrelevant and possibly inadmissible at trial, the damage was already done. Fortunately, my client had not wanted to sue her former employer anyway, but had she wanted to, she might have been dissuaded due to the emails. In the end, the client received a severance package that she was happy with and I can only assume that the former employer was happy with the severance agreement terms which prevented my client from ever suing them in the future.

There are a few lessons to take away from this. First, always encourage your client to be forthcoming about any possible ammunition the other side might have, so that you can diffuse the issue as soon as possible. Second, remind your client that he or she should assume that everything she sends or receives (or views) while at work is the employer’s property and able to be retrieved by the employer at any time.