Severance Pay - The Party is Over

Posted on August 9, 2009 by Robert Ottinger

Today's Wall Street Journal has an article by Anna Prior that starkly details the cold reality facing hundreds of thousands of people today. Companies are cutting back severance pay to bone and they are less willing to negotiate. Today, it is take it or leave it. We see this every day at our law firm. In the past, companies were more willing to enhance severance packages by increasing the amount of pay, extending health care and other forms of compensation. Today, some companies will offer modest enhancements, but typically only when the employee has a potential claim.

I speak to people on a daily basis who contemplating severance offers and there are two common misunderstandings. First, most employees do not have a legal right to keep their job because they are employees at will. Second, people do not have a right to severance pay. Severance pay is not a legal right in the United States unless you have an employment contract that creates this right.

As Ms. Prior points out in her article, certain senior executives can increase the offer if the company requests a non-competition clause. In the past, we have obtained substantial increases for executives in this situation, but today it is more difficult. In some cases, the money offered in severance does not justify the restrictions imposed by a non-competition clause. The clauses are enforceable and people should think twice before signing them as they can keep a person out of their field for years. Before signing one, make sure you narrow it as much as possible and be sure you are well paid as you are basically agreeing to run in the race with one leg.

In my opinion, the best way to survive in today's economic climate is to save money while you have a job and build your own severance package in your bank account because you cannot rely on your company. Also, there will be a small minority of people who can extract an enhanced severance or settlement from a company because they have a legitimate employment discrimination or harassment claim that can be used as negotiating leverage. Most people, however, will not have a genuine employment claim and they will not have leverage to negotiate.

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Top 5 Questions and Answers about Layoffs and Severance

Posted on March 9, 2009 by Robert Ottinger

People who call our law firm these days often have the same questions so I thought I would post the top questions and our answers to them. 

1.    Will My Employer Revoke My Severance If I ask for More?
Answer:  Not likely so long as you ask nicely and make reasonable requests.  The company has offered severance because it wants to keep things as smooth as possible and a polite request should not jeopardize the offer.  In fact, in the ten years that I have been representing employees, I have never heard of anyone losing their severance agreement simply because they asked the company to increase or modify the severance offer.  

2.    Do I have a legal right to get a severance package if I am laid-off?
Answer:  No.  The only people who have a legal right to severance payments are top executives who have written employment contracts. That is why you hear about the big shots leaving with golden parachutes.  But most everyone else is an employee-at-will and sadly there is no legal requirement for severance.  Severance payments are usually voluntary.   

3.    Can I sue for wrongful termination because my company had no reason to fire me?
Answer:  Not likely.   Most everyone is an employee-at-will and that means exactly what it says.   You can quit for any reason and likewise your employer can fire you for any reason.   Basically, you have no right to your job.  It can be taken away anytime for any reason.   The only real limits are the laws that prohibit discrimination, illegal harassment and certain narrow types of retaliation. 
There are other laws that limit an employer’s ability to fire employees such as the Family Medical Leave Act.   A few fortunate employees out there have written employment contracts that give them more protection but those are rare.  Most everyone is an employee-at-will.  
 
4.    I am worried that I might get laid-off, what should I do now to protect myself?
Answer:   A.  The best thing you can possibly do to protect yourself has nothing to do with the law.  You need to make yourself valuable so that you can easily get another job.  Start networking, update your resume, keep your eye-out for other jobs, and acquire the skills that companies need.  
B. Prepare to be fired by bringing everything that you might need in the future out of your office and take it home.  [Don’t take anything that is not yours.]   If you are fired, you might be led out of your office by security and you may never see that list of key professional contacts again.   
C.  If you think you are being discriminated against and have evidence of discrimination then make a copy and take it home.  For example, if you are in your 50’s or 60’s and things are being reshuffled in favor of younger employees, you might want to keep track of how things looked before and after the shuffle because that might help prove age bias.  

5.    How Can I Tell if my Severance Package is Fair?
Answer:  There is no magic severance formula or legal severance requirement.  There are ratios that some companies follow but those have changed and they cannot be relied upon these days.  The ratios vary anywhere from one month of severance for each year of service down to one week of severance for each year.   Usually the higher up you are in the company the more you will get.  Lower level workers will get one week per year while a top executive might get one month per year.  But this is an old idea that really is not followed with any regularity today.   Some companies still do follow similar formulas and many do not.  There are no laws that govern the amount of severance paid to terminated-employees so companies are largely free to offer any amount they want so long as they do not discriminate.   Also, a large factor is the financial health of the company, so today many companies are offering less severance pay.   

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