Sometimes terminated employees are offered a Severance Agreement by their soon-to-be former employer. A severance agreement, in essence, consists of a payment of money to the employee in exchange for a promise to never sue the employer for most employment laws. It buys the peace and prevents lawsuits before they ever can start.
Since employees are often terminated abruptly and without warning, the decision to sign or reject a severance agreement can be a difficult one. Adding to this difficulty, most employees do not know how much money is acceptable, normal, or appropriate in their particular circumstance.
The short answer is that severance agreements can range from $3,500 to $150,0000 or even larger, but the appropriate amount of money in a severance agreement ultimately depends on the particular case based on a number of factors and the willingness of the employer and employee to agree on a specific amount.
First, in the big picture employers do not have to offer severance agreements at all. An employer may offer severance packages to some employees, but not others, and may offer similarly situated employees different amounts of money. The amount of the severance package is not set by law and the amount can be negotiated between the employee and employer.
If a severance agreement is actually offered the biggest factor in determining the appropriate value is whether the employer believes it has violated any employment laws or not, or believes it has legal exposure because of the employee. For example, an employee who was fired for an unquestionably legal reason (such as a factory closure, resulting in a mass layoff), a severance agreement could be very low. This is because the employer believes its legal exposure to be minimal. However, if an employee is fired in legally questionable circumstances, for example after making legally protected complaints, after requesting reasonable accommodations, or after demanding that overtime be paid, the employer may be willing to offer a much larger sum of money.
Because the appropriate value of a severance agreement is largely determined by the viability of the employee’s legal claims, employees should first consult with an employment attorney before signing them. An attorney can identify potential legal claims, a practice called “issue spotting”, to ascertain the value of any legal claims the employee would be giving up. For an employee with a potentially strong legal claim, rejecting the offer of a severance agreement entirely is often the best choice.
Second, although the dollar amount of severance agreements are not set by law or other fixed standard, employers oftentimes rely on the length of the employee’s employment and/or the amount of the employee’s salary in determining the dollar amount of the severance agreement. Employees of very high rank will frequently be offered more than low level employees, even if the higher ranking employee worked for only a short period of time.
Have you been offered a Severance Agreement by a soon-to-be former employer? Contact the Law Office of Brian Mathias for a consultation before signing.