A Guide to New York Severance Packages

A Guide to New York Severance Packages

Severance packages provide economic relief for terminated employees and ease the separation from a company, but they can also be used to limit the legal liability of employers. If you have been offered a severance package, you likely have many questions. Is the package reasonable? Can I negotiate the terms? What am I giving up? Before signing on the dotted line, review this Guide for a better understanding of severance packages, your rights, and to ensure you are getting everything you deserve.

Chapter 1 What is a Severance Package?

Chapter 2 Severance Package vs. Separation Agreement

Chapter 3 Employer Motivations for Offering a Severance Package

Chapter 4 Components of a Severance Package

Chapter 5 Limitations of Severance Packages

Chapter 6 Negotiating a Severance Package

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What is a Severance Package?

A severance package is the collective bundle of benefits (e.g., money, health insurance, stock options) an employer offers to an employee upon termination or voluntary, early retirement. Severance is usually contingent on the signing of a severance (or separation) agreement .

Subject to a few exceptions, New York at-will employees are not legally entitled to a severance package. An employer may be required to pay severance pursuant to an employment agreement, company policy, collective bargaining agreement, or the Worker Adjustment Retraining & Notification (WARN) Act (requiring severance pay if an employer with more than 100 employees fails to give the requisite 60-day notice of a plant closing or mass layoff).

Severance packages are most often reserved for executives or top-level employees, employees with a long history of dedicated service to a company, or in situations where termination is out of the control of the employee. Employers are unlikely to offer severance to employees terminated for misconduct or incompetence.

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Severance Package vs. Separation Agreement

A severance package is offered in addition to an employee’s usual compensation. A separation agreement is a contract whereby an employee and employer agree to certain terms such as an employee’s waiver of rights to pursue claims against the employer, non-disclosure agreement, or non-compete agreement. In return for signing a separation agreement, an employee is typically given some form of compensation.

While an employer could offer a severance package without requiring the employee to enter into a separation agreement or vice versa, an employer often requires a separation agreement for receipt of severance to protect their business interest.

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Employer Motivations for Offering a Severance Package

A severance package may soften the blow of an unexpected termination and provide short-term relief in terms of income and benefits. While at first glance this may seem like a kind gesture, your employer has reasons for offering severance—protecting their legal liability. An employee is often required to enter into a separation agreement in exchange for a severance package. Separation agreements are used to limit an employee’s ability to pursue claims against an employer and may contain non-compete, non-solicitation, and confidentiality clauses. Severance packages can also be used to get you to leave quietly and prohibit you from speaking badly about your former employer (i.e., non-disparagement agreement). In some instances, companies offer severance packages out of custom or based on company policy, or out of fairness due to the circumstances of the departure. Severance can also smooth the transition because employees will be more likely to assist an employer with any outgoing tasks.

Severance packages can be helpful, but employees should ensure they fully understand any rights they may be giving up in exchange for compensation. A severance attorney .

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Common Severance Package Benefits

Severance packages come in many forms and may contain any combination of the following:

Severance Pay

Severance pay is the amount of money paid to a departing employee, commonly discussed in terms of weeks or months of an employee’s salary. While companies differ on how they determine the amount, employers often base the amount on the employee’s years of service or position in the company, or a combination of both. For example, an employer may provide one week’s pay for every year of service. In some instances, executives may have negotiated severance pay in their employment agreement at the time of hiring.

Severance pay is distinct from your last paycheck. Severance pay is compensation beyond payment for time worked up until your termination. Depending on your company’s policies, the last paycheck can include payment for accrued vacation or personal days and benefits elections.

Employers can pay severance in one lump sum or installments. Employees should be aware that the structure of the payment has potential tax consequences. Consult with a tax professional or employment attorney for the best way to structure the payment.

Lastly, understand how getting a new job will affect your severance pay. Look out for any language requiring you to pay back money or receive reduced payments if you get a new job within a specific timeframe.

Separation Agreement

A separation (or severance) agreement is a contract between the employer and employee whereby the employee agrees to certain terms related to termination, often including the waiver of certain rights to bring claims against the employer. Severance pay is often contingent on the signing of this agreement. Separation agreements may contain the following provisions:

• the amount and terms for severance pay;
• terms for vacation and PTO pay;
• benefits, including health insurance;
• non-compete
• non-solicitation;
• confidentiality;
• non-disparagement;
• unemployment information;
• return of property;
• release of claims and covenant not to sue;
• references;
• cooperation agreement or transitional arrangement terms; and
• dispute resolution.

Commissions, Bonuses

Severance may include prorated bonuses or commissions.

Vacation and Sick Days

Depending on a company’s policies, payment for accrued vacation or sick days may be included in a severance package if not already included in an employee’s last paycheck.

Stock Options or Company Equity

A severance package will typically explain the value and payments terms of any equity interest. For example, if you have vested stock options, take steps to ensure you can exercise them. A departing employee usually has 90 days to exercise vested stock options before they expire.

Insurance Benefits

Employers may offer to continue payments towards your health, vision, dental, or group life insurance policies. Pursuant to the Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA), companies with at least 20 employees must offer health insurance to terminated employees for 18 months at their corporate rate. However, the price the employee must pay is the full cost the employer paid, which can be very costly. Many severance packages include an offer to make full or partial COBRA payments or continue your benefits for a period.

Unemployment Insurance

In most states, including New York, employees cannot receive unemployment compensation while they are receiving severance pay. However, if an employer waits to start paying severance until after 30 days from termination, then the payments will likely not affect the employee’s eligibility for unemployment. A severance package may contain an agreement that the employer will not contest a claim for unemployment compensation. A person terminated for cause or who quits is not entitled to benefits.

Outplacement Services

Outplacement services may be offered to assist in finding a new job and may include: job search assistance, resume reviews, and career coaching services.

References

Severance packages can specify the terms for how the employer will respond to requests from prospective employers or include letters of recommendation.

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Limitations of Severance Packages

Since severance packages often require the signing of a severance agreement, it is important to note that an employer cannot ask you to waive certain things such as criminal claims. In addition, an employer cannot ask you to waive your right to pursue violations of New York wage and hours laws (e.g., your right to claim wages, unemployment insurance, or overtime pay). They cannot make the receipt of your last paycheck contingent upon you signing a separation agreement. Finally, they cannot induce you to sign through undue influence, fraud, or duress. Separation packages and severance agreements are complicated, so it is advisable to consult with an employment attorney who can review your agreement, advise you on any legal rights you may be waiving, and identify any unlawful terms in the package.

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Negotiating a Severance Package

Special Considerations for Employees over 40

The Age Discrimination in Employment Act requires companies to provide employees 40 years and older at least 21 days to consider a severance agreement and seven days to revoke it after you sign.

Can I Negotiate?

Whether or not you can, or should, negotiate the terms of your severance package depends on whether you have leverage. Consider the following when assessing your bargaining power:

• Your Employment History. What value or specialized skills did you bring to the company? Did you develop meaningful client relationships? Did you have strong performance reviews and is there documentation to support your performance?
• Employer Policies. Does your employer have a set standard for severance packages and have they adhered to that standard for other employees? It may be difficult to determine what severance former employees received, but if your offer is not consistent with past packages, this may be an opportunity to negotiate.
• Circumstances Of Your Termination. If the termination was out of your control and you have a positive work history, you are more likely to have increased bargaining power. However, if your termination was part of a group layoff, you will have more difficulty negotiating.
• Legal Claims. An employee with potential legal claims will have a significant advantage in negotiations. This includes potential claims based on activity that occurred during your employment, or claims based on unlawful termination.
• Financial Health of the Employer. The financial status of your company will impact an employer’s ability to negotiate payments. You may have to be creative and look for alternative forms of compensation during negotiations.

Terms to Negotiate

• Severance Pay. Some companies use formulas to determine severance pay. During negotiations, view this figure as a starting point—do not be afraid to ask for more. You may also negotiate the structure of the payment—lump sum or installments. If severance is paid in installments, request there be no offsets, mitigation, or clawbacks. You can negotiate when the payments are made and ask they be made sooner. If you work in an industry where jobs are scarce, or there are other reasons it may take longer to find new employment, ask for more money to accommodate the extra time you will likely be unemployed.
• Repayment upon Employment. If the terms of your package require you to repay all or part of your severance pay in the event you obtain new employment, seek to remove this provision.
• Separation Date. It is easier to find a job when you have one, so if possible, negotiate for a later separation date.
• Vacation Pay. If you have accrued vacation time, ask for the cash value or to remain on the payroll until the time is used up.
• Insurance. Always ask for paid health benefits. For example, if the company has agreed to pay you six months salary, ask for six months of paid health benefits or coverage for your COBRA payments.
• Unemployment Benefits. Negotiate for the inclusion of language that prohibits the employer from contesting your claim for unemployment benefits.
• Stock Options. Make sure you have an opportunity to exercise stock options. Consider requesting an extension on the 90-day period for vested stock options. You may also consider a cashless exercise of any vested stock options so no out-of-pocket cash is required to exercise the options. If you have unvested stock or options, ask the company to accelerate the vesting date so they vest before you depart.
• Business Expenses. Request reimbursement for any expenses that are unpaid.
• Company Property. Is there a phone, laptop, or other company property you would like to keep? Would you benefit from the ability to use company e-mail or voicemail for an extended period?
• Outplacement Services. The value of these services vary in range but can be worth up to $25,000. If you do not need or want this assistance, request the cash value.
• References. Requesting positive letters of recommendation should be an automatic request when negotiating a severance package.
• Loan Repayment. It is common for employers to require that employees pay back loans for education or vehicles if they are not employed for a period. Look to minimize or eliminate any amounts you owe.
• Restrictive Covenants. If terms of the non-compete, non-solicitation, non-disclosure, or any other agreement restricting your rights are unfair or illegal, these should be addressed during negotiations.

Before entering into negotiations, take time to identify what is most important to you. Money, benefits, a good recommendation? Begin talks with your biggest request, because if you start with little things, by the time you get to significant items, your employer may feel they have given enough and be less likely to agree to your requests. If you have concerns about negotiating or want someone to negotiate on your behalf, contact a New York severance lawyer.

Other Considerations

Before accepting a severance package, remember these final tips:

• Pay strict attention to deadlines. If you are under 40 years old, you are not automatically entitled to a 21-day review period unless you are part of a group layoff. You may have a limited timeframe to review and accept the severance package, so do not procrastinate. Speak with an experienced employment lawyer immediately for a Review & Consultation.
• Do not rush into signing. Take time (within the applicable deadlines) to review the entire package and evaluate whether the terms will meet your future needs and identify areas for further negotiation.
• Do you have any legal claims? Review your employment history and termination to determine whether you have potential legal claims against your employer that may be waived by accepting the offer. An employment lawyer can be instrumental in this regard—do not be afraid to ask for help.
• Always remain professional. Unprofessionalism can endanger negotiations and jeopardize future employment and your reputation.

Losing a job brings many emotions and challenges, but The Ottinger Firm is here to help during this difficult time. If you need assistance reviewing or negotiating a severance package, contact our employment lawyers at 347-242-4406 or contact us online.

 

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