What Employees Need to Know When Negotiating Severance Packages

 Posted on September 21, 2021 in Employment Law

By: Attorney Jaclyn Kallie

Being laid off or terminated by an employer can cause significant difficulties for an employee.  The loss of income may affect a person’s ability to provide for themselves and their family.  A terminated employee may also be concerned about the loss of medical insurance or other benefits.  Fortunately, some employers offer severance packages to employees who are being terminated.  These packages may include severance pay or the extension of benefits while a person is searching for a new job.  Before signing a severance agreement, it is a good idea for a person to consult with an employment law attorney who can advise them of their rights and assist in negotiating more favorable terms.

What Can Be Included in a Severance Agreement?

Federal laws and Wisconsin state laws do not require employers to offer severance pay to workers who are being terminated.  However, it is often to an employer’s benefit to do so, since a severance agreement may allow them to prevent legal claims by a former employee, as well as potential competitive behavior.  Under the federal Age Discrimination in Employment Act (ADEA), employees who are over the age of 40 must be given 21 days to consider a severance agreement, and after signing an agreement, they will have seven days to rescind the agreement.  In many cases, a company will provide employees under the age of 40 with similar amounts of time to determine whether to sign an agreement.

A severance agreement may address:

• Severance pay - An employer may offer an employee a certain amount of compensation as part of their severance package, and this amount may be paid in a lump sum or in multiple installments.  The amount of severance pay will usually depend on the amount of time the person worked for the company and the position they held.  An executive or manager will be more likely to be offered higher amounts of severance pay.  A severance package may also address any unused vacation time or sick time that a person had accrued.

• Benefits and perks - While benefits such as medical insurance or disability coverage will usually cease after the termination of a person’s employment, a severance package may extend these benefits for a certain period of time to ensure that a former employee will have coverage until they can find a new job.  A person should also be sure to understand how pension benefits, employer-sponsored retirement accounts, or stock options will be handled.  They may also need to address perks offered by their former employer, such as whether they can maintain ownership of a company laptop or other equipment.

• Release from liability - In return for severance pay or any other benefits offered in a severance package, an employee will usually be prohibited from taking legal action against their former employer.  A severance agreement may specify that a person cannot pursue a lawsuit related to discrimination, injuries caused by an employer’s negligence, or any other legal claims.

• Restrictive covenants - To prevent a former employee from using inside information about a company in a way that could cause the company to suffer losses, a severance agreement may place restrictions on the person’s activities.  A non-compete agreement included within the severance package may prohibit a person from working for competitors or engaging in other competitive activities, and a non-solicitation agreement may prevent a person from contacting a company’s customers or attempting to hire other employees.  These restrictions must be reasonable, and they must usually be limited to a specific time period and geographical area.

Contact Our Milwaukee, WI Severance Agreement Attorneys

Before signing a severance agreement, it is important to consult with an attorney. At Gimbel, Reilly, Guerin & Brown, LLP, we can review a proposed severance package and make sure you understand the restrictions that will apply to you and the benefits you will receive.  We can also help you negotiate more favorable terms that will allow you to succeed as you pursue other opportunities.  Contact our Milwaukee employment dispute lawyers at 414-271-1440 to learn how we can help you protect your rights and interests.

Sources:

https://www.investopedia.com/articles/pf/08/negotiating-severance-agreements.asp

https://www.eeoc.gov/statutes/age-discrimination-employment-act-1967

https://www.dol.gov/general/topic/wages/severancepay