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Six Key Points to Consider When Reviewing a Severance Agreement

Paycheque These tips may help you evaluate your severance package. Each case is different so mileage may vary. It’s a great idea to consult with an experienced New York severance lawyer.

1. What is the Severance Pay Schedule?

Many companies will propose a payout in 30 or 45 days after execution of the severance agreement. There is no reason to wait that long and companies will often shorten the payout date to 10 or 15 days upon request. Also, companies often propose a payout over time that basically keeps you on the payroll for a period of time. A lump sum payment is preferable because you get all of the money immediately. Pay outs over time can be disrupted if something comes up – avoid these potential issues with an early lump sum payment.

2. Are Outplacement Services Offered?

If so, determine if you need those services. Most people do not want them anymore. If you don’t need those services, ask to have the cash equivalent.

3. Are the Severance Payments Subject to a Mitigation Offset?

For example, if you get a new job within a certain time frame, are you required to pay back an amount or have the payments reduced? Obviously you want to avoid any offsets if you find a new job. If an offset clause is included in your agreement, ask to have it removed. Companies usually agree to do this. The point of a severance package is to end the relationship so why create new ties.

Here is a clause that our New York severance lawyers use to cover mitigation and offsets:

“The Executive is under no obligation to seek other employment and there shall be no offset against any amounts due to him on account of any remuneration or benefits provided by any subsequent employment he may obtain.”

4. Is There any Money Owed to You That is Independent of the Severance Package?

For example, are expense reimbursements owed or a pending bonus? These payments should be recognized in the agreement. If you know that certain expenses are due, run a report and show it to your employer so the amount owing is known and if any questions arise, try to solve them immediately. Also, if an accrued bonus is due, try to get the bonus paid. The bonus is not part of the severance if it has already been earned. Companies often try to exclude bonuses.

Also, be sure to include a clause that covers any outstanding business expenses. Here is a clause that covers un-reimbursed business expenses:

“Within 15 days of the Separation Date, the Company shall pay to the Executive any expense reimbursements due to the Executive as of the Separation Date pursuant to the applicable plan, program or practice of the Company.”

5. Benefit Continuation

If the company has offered to continue your health insurance, will this be accomplished by continuing the existing insurance plan or by COBRA reimbursement? This should be set forth clearly in the agreement. If the company has not offered to extend benefits, you should ask them to do so. Ask to have the benefit continuation mirror the severance period (if the severance offer is 4 months ask for 4 months of continuing health insurance).

6. Job Reference

What type of reference will the company provide to you? If they will agree to a letter of reference, have the letter prepared and attach it to the agreement. Or if a letter cannot or will not be prepared, set out the terms of the reference in the agreement as in this sample.

“The Company agrees to supply a neutral reference letter that includes the Executive’s title, dates of employment, salary and the reason for separation as resignation.” However, many companies today are reluctant to provide reference letters or anything more than a neutral job reference.

For more on this topic, see the Forbes article on How to Get the Best Severance Deal.

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