Closing the Severance Pay Negotiation with Non-economic Terms

posted by Neil Klingshirn  |  Jul 14, 2009 5:36 PM [EST]  |  applies to Ohio

The amount of severance that an employer is willing to pay an employee, though usually the single most important item addressed in severance negotiations, is only one severance issue.  Additional issues include:

  • Tax treatment of the severance payment;
  • Method of payment (lump sum vs. salary continuation);
  • Benefits continuation, especially health insurance;
  • Whether benefit continuation will count against COBRA payments;
  • Who will handle the paperwork to rollover 401K benefits;
  • Whether the employer will contest unemployment compensation benefits;
  • Carve outs from the employees release of rights to exclude unemployment compensation claims and any pending workers' compensation claim;
  • A release of claims by the employer against the employee;
  • Outplacement services;
  • Retraining opportunities;
  • Eligibility for rehire;
  • The use of offices and support staff for set period of time, especially for executives;
  • Mutual non-disparagement;
  • Confidentiality;
  • Handling breaches by the employer or employee (Actual damages, liquidated damages, rescission of the agreement, arbitration);

These issues should be addressed in the employee’s opening demand and resolved as part of the bargain.   

Closing the Deal

Once the employer and employee believe they have an agreement, disputes can still arise out of the drafting of the written settlement document. These disputes may be the result of a genuine misunderstanding as to whether there was a deal or no deal, one party having second thoughts or bad faith by a party or counsel. Whatever case, attorneys can minimize such disputes by:

  • negotiating or confirming negotiating positions in writing;
  • including all material terms in the initial demand and offer;
  • including all material terms in the final settlement agreement;
  • notifying the Court or agency if a case is pending that it has been resolved and obtaining an order to that effect, which ideally includes the material terms.

There Ought to be a Law

Employment laws do not provide a remedy for every discharge, including some that are terribly unfair.  Those that do provide a remedy may not provide a remedy sufficient to cover the risk and costs of pursuing the claim.

Representing terminated employees requires the ability to explain to employees that the civil justice system does not provide adequate remedies for every termination. Most employees are grateful to know their rights, or the lack of them, and take comfort in the knowledge that they are not foregoing a valuable legal remedy by not filing suit. The attorney can recommend non-legal options for the employee, such as political action in support of legislative changes to existing employment laws. The attorney should also emphasize the importance of pursuing non-legal avenues to reduce job loss costs, such as finding new, comparable employment as quickly as possible.

Conclusion

Employees typically turn first to the civil justice system to fight their employment battles.  Regrettably, many “wrongful” terminations have no legal remedy and, for those that do, courts are not efficient at resolving disputes.

Even so, an employer who terminates an employee under questionable circumstances has good reason to offer the affected employees a reasonable severance package. The valuation techniques and settlement strategies discussed in related articles are useful for evaluating the adequacy of the severance package and, if possible, negotiating more favorable terms.

External Links

Links to external sites with additional information about this topic.

posted by Neil Klingshirn  |  Jul 14, 2009 5:36 PM [EST]  |  applies to Ohio

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Neil Klingshirn

Neil Klingshirn
AV rated Super Lawyer and Employment Law Specialist
Independence, OH
Phone: 216-382-2500