Spending and Saving

Fairly Legal: Severance 101

Tips and insights from our legal experts. 

“So… how big is your package?”

It’s a question that used to be taboo, something only discussed between intimates. But these days, virtually no one is too shy to ask about the dimensions of someone else’s severance deal. In fact many people can’t help but compare what they received against the packages of their friends, enemies and former coworkers.

It’s natural to want to know how you measure up. And information sharing in this regard can be valuable because as you’ve no doubt realized by now, severance packages come in all shapes and sizes—some generous, many decent, some completely non-existent. So what’s fair and what’s your legal due… and technically what is severance anyway?

Severance, as defined by the American Heritage Dictionary is: “The state or condition of being severed or separated, as in the ending of a relationship.” But you already suspected it was a parting gift for being dumped, didn’t you? Legally speaking, severance pay is what an employer gives an employee at the time of termination. It is sometimes given in lieu of notice (as in, “So sorry to let you go. But here’s two weeks of pay. Don’t let the door kick you in the ass on the way out.”) Sometimes a company provides severance based on how long you’ve been in your job; for example, one week of severance for every year of service. But depending on how poor the financials of the company at the time, sometimes the employer will offer a flat two weeks of pay regardless of your length of service. And sometimes, you’ll get bupkes—Yiddish for diddley squat.

What? No severance? Is that even legal? In fact, there is no law that requires a company to give any severance pay. Unless you have an employment contract or were party to a collective bargaining agreement that set terms of severance up front, you were an “employee at will.” (That means that you can be fired at any time with or without cause, just not for a discriminatory reason.) So regardless of how good your performance or how long you worked for a given employer, the company is not required to give you anything when you’re terminated.

Many companies give severance as a penance for knowing they’ve just put your kid’s college fund—and your mortgage payment—on the line. But very few offer it with no strings attached. Any company with a right-thinking lawyer will require that before the company hands you a dime to which you’d otherwise not be entitled by law, they are going to get you to give up certain rights in exchange for that cash. So along with the promise of a severance payment, they send you off with a document called a “Severance Agreement.” What if your company does offer you a package–and a pen to sign off on it with–mere moments after they’ve told you your “relationship” is over? There are some things you must consider.

First, look for the waiver of all claims. That means that if you accept the money, you agree not to sue them for any reason related to your employment or the termination of your employment. If you don’t believe you have any claims against the company anyway, this is not a problem. But if you happen to notice that every one of the members of your protected class have been laid off (say, workers over 40) then you may wish to speak to an attorney before deciding whether or not to accept the trade.

Second, look for other obligations like an agreement not to compete. If by taking the severance pay you have to agree not to work in your former company’s industry for a set period of time, consider whether that’s a wise move before signing.

Third, check how long you’ve been given to accept the severance. If you are a worker over 40 and have been terminated individually, you should be given at least 21 days to consider the offer (which gives you time to consult with a lawyer) and even once you’ve signed the agreement, another seven days to revoke your signature. If you’re given the severance as an incentive for early retirement or other reason that affects a class of older workers at your company, you should be given 45 days to consider the offer. That doesn’t mean you must wait, it just means you have a bit of time to clear your head and make a good decision on whether or not to accept severance.

Finally, even though your employer isn’t legally obliged to offer you severance, it doesn’t mean that it wouldn’t. It also doesn’t mean that they won’t negotiate. Particularly where you are a member of a protected class who MIGHT have a legal claim to make, or where you are going to be forced not to work in your industry for a set period of time, you may have some room to negotiate. So ask the person who gave you the agreement if this is the best offer the company can make given what you’ll be giving up. Or you can try to explain that you’ll have trouble making your rent to see if the company would be willing to give you more. Though it’s impossible to know if this request will be honored, the only guarantee you have is that nothing will change unless you ask for it. In other words, we encourage you to be your own best advocate.

Tags: fairly legal, severance