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How to Negotiate a Severance Agreement

I receive many calls from employees who were recently lost their job and were handed a severance agreement to sign. Some clients believe that the severance agreement is some kind of bribe; they believe it's an admission by the employer that the employer did some wrong; they think they are being silence. None of this is necessarily true. From an employer's perspective, a severance agreement is a smart move to protect itself against future liability.

"A severance agreement is a contract between an employer and a past-employee. Like any other contract, it is negotiable. The basic premise behind a severance agreement is that an employer pays an employee money in order to avoid future disputes." See "Be Informed Before Negotiating a Severance Agreement."

With that in mind, employees should not assume that signing the severance agreement is a bad idea. In fact, it's usually a good idea. But it is important to take it seriously, including the waiver of one's rights. A severance agreement is not akin to signing a cell phone agreement in which you have no bargaining power. The terms of a severance agreement will be upheld in a court of law. So, do not let an employer railroad you. Use the severance agreement as a tool.

Here are some suggestions that I contributed to CNN's iReport:

Amount of Compensation

"It never hurts to ask for more money. Forcing an employee to waive his or her rights is a great incentive for an employer because it closes the book on potential legal disputes." Additionally, if you believe that you have a potential claim, you can use that as a bargaining chip. It is more cost effective for an employer to pay off an employee by way of a severance agreement then a civil action. To determine whether you should negotiate a severance agreement or forego it entirely, you may need to first determine how strong your claim is. This is where a consultation with an attorney is valuable.

Type of Compensation

"If an employer is unwilling, or unable, to offer more cash, an employee should consider other means of compensation. Some employees are awarded stock options during the course of employment or as a bonus. When the employee is terminated prior to the vesting of those options, the employer often claims that the remaining options are lost. First, this may not be true and an employee should always look to his or her Stock Options Plan to see what is in writing. Second, even if it is true, this is still an avenue for negotiation." Another important concept to remember, is that a negotiation does not mean "all or nothing." Maybe you cannot save all of your unvested stock options, but you may save a portion of them. Consider the situation in which you are terminated 1 month before the vesting of stock options you have waited a year or more for. Your argument to preserve the vesting of those stock options is much stronger than the options that are not due to vest for another year or more.

Health Benefits

"An employer who pays health benefits may be willing to continue paying benefits after termination. For an employee in need of continual health care, health benefits may provide more reward and comfort than receiving additional cash. For the employer, the cost of the benefits is likely far less than the cost of additional wages." This is particularly true with close knit companies. Sometimes employers sympathize with their employees who have an illness or children. They are then willing to continue to support their employee's health care because they have developed a more personal relationship.

Non-disparagement Clause

"Many employers have a policy that the human resources department may only confirm an employee's employment dates. In other words, the human resources department is not permitted to provide additional feedback to future employers such as the reason for termination. Not all companies have H.R. departments, however. For an employee leaving on undesirable terms, it may be particularly important that his or her employer does not share the terms of the separation. By putting a non-disparagement clause into the agreement, the employee creates a contractual obligation on the employer not to say anything negative about the employee or his performance." If you're in a line of work that requires recommendations, you can also request a recommendation from the employer. Even if you left on less-then-favorable terms, you can ask for a neutral letter. A neutral letter might merely state the time of employment, position, tasks, and any accomplishments. It doesn't always neeed to be a glowing letter to serve its purpose.

Choice of Law

"A choice of law clause identifies the law that applies to a particular agreement. A California resident should insist on California as the applicable law. Employers with out-of-state offices often seek to apply out of state laws. Without knowing that other state's laws, however, the employee is exposing himself to unknown risks."

Choice of Venue

"Similar to choice of law, a choice of venue clause identifies where a lawsuit may be filed. A San Diego resident should insist that the contract be enforceable in San Diego Superior Court and the United State Federal Court –Southern District. Failing to insist on a local venue could force an employee to bring the lawsuit in a more costly location."

Attorneys Fees and Costs

"Finally, a severance agreement should contain a clause that awards the prevailing party reasonable attorneys fees and costs. Attorney fees are only recoverable if designated by statute or provided for by contract. In the instance of a severance agreement, the attorney's fees clause would be necessary, if, for example, an employer disparages the past-employee causing him or her to lose a potential job opportunity. The attorney's fees clause creates a powerful negotiation tool in the event of a future dispute."

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