5 Major Components of a Severance Package

Do you expect to negotiate a severance agreement with your employer soon? While a legal agreement of this nature can be intimidating for the average employee, you can successfully negotiate it in your favor. One key to doing so is to understand the key components you can expect to see. Below are five of the most common components of a severance package.

1. Severance Pay

Probably the biggest question on many departing employees' minds is how much their severance pay will be. This should be clearly spelled out, including any accrued from unpaid vacation and sick days, commissions, bonuses, and stock options. Some companies have strict rules regarding how much — if any — additional pay is offered, while other companies allow negotiation. If the monetary terms are vague, the employer may not intend to pay the unpaid vacation and sick days, commissions, bonuses, and stock options. Specificity matters. 

2. Benefits Package

After the money component, the benefits package will be a major element of your agreement. This is often the section in which you can do the most negotiation, as it can be less expensive to the company than other concessions. It specifies how long the company will extend benefits like health and life insurance, if there is any employment assistance, and your rights regarding retirement contributions.

If you can negotiate for benefits, look for those that will do you the most good for you, such as extended health insurance until you find a new job. If the employer is terminating the employment relationship, then you should receive a COBRA notice to continue your health insurance benefits. 

3. Non-Compete Clause

A non-compete clause is fairly standard in severance packages for key employees. The employer asks the employee to agree not to work for competing businesses, poach clients, or recruit existing employees for a period of time or in a certain geographic area. Be careful that this clause is not too large or vague. Depending on how valuable your services were, you may be able to negotiate significantly on this subject. Alabama has a specific statute governing non-compete clauses.

4. Confidentiality Agreement

The company will generally ask departing employees to agree that they will not spill the employer's secrets. This covers things like confidential material, trade secrets, patents, business processes, customer lists, and product details. If you had access to key information or the company mishandled layoffs, you may find this a useful negotiation point as well because the employer is well motivated to protect itself. 

5. Covenant Not to Sue

Finally, the agreement likely ends with you agreeing not to sue your employer for things such as wrongful termination, harassment, or discrimination. While the employer can legally ask you to waive these and other types of rights, they cannot ask you to waive your right to report any crimes or violate labor laws or file Charges or complaints with certain federal administrative agencies. 

For many employees, this portion is not a big concern if they've had a standard experience at the company and haven't had problems such as harassment or discrimination. However, if you do have reason to believe you may need to pursue a legal case — due to improper termination or things that happened during your employment — consult an attorney before signing away this right. 

If you are over forty (40) years of age, you have twenty-one days to consider the agreement and consult a lawyer prior to signing. Once you sign, you then have seven (7) days to reconsider your decision. However, rescinding the agreement comes with pitfalls and limitations. 

Where to Start

Educating yourself is valuable if this is your first severance package negotiation. While your particular severance package will look different from another, it generally has these same key components. By knowing what to look for and what they mean for you, you can successfully navigate this final employment challenge. 

Want more help with your severance agreement? Start by meeting with an employment attorney in your state today. They will work with you to ensure your rights are protected and your takeaway is maximized. 

Allen D. Arnold Attorney at Law has worked with Alabama employees of all sorts regarding their severance packages and negotiations. We can provide simple services such as reviewing your offer and advising you or more complex work like helping you with negotiations. Call today to make an appointment. 

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