Companies offer severance packages that they believe employees will accept, which is not necessarily the same severance package that a judge would consider fair. Why? They know that many people will just agree to what they are first offered because they are either afraid or don't know they can ask for more.
If you were recently laid off, or are about to be, here is some advice about what you should consider.
The biggest concern I hear from recently dismissed employees is that their severance packages will allegedly expire or somehow disappear if they do not accept the terms within a short time frame. This creates pressure for many individuals who cannot afford to lose what they were offered, even if it means they are not getting a fair deal. Employers know this and some try to use severance-offer deadlines to their advantage.
How much time should you be given to review a severance offer? Employers must provide a reasonable time frame to get advice from a lawyer or adviser, or risk an inference of trying to create duress. One week to 10 days is considered standard. However, if this is not enough time or if an employer is using a shorter deadline as a tactic, then request an extension in writing and be sure to state that it is so you can obtain proper advice. The last thing any company wants, especially a large one, is the appearance of acting unfairly when terminating employees.
If you negotiate for more severance, can you lose what was initially offered? This is the second-biggest fear that just-dismissed employees have when considering a severance offer. The answer is that it is technically possibly, but practically very unlikely.
In law, just as in life, if someone makes you an offer not quite worth accepting, they are generally not going to offer you less than what they started with just because you asked for more. This principle generally applies equally to severance negotiations, but with a few twists.
Keep in mind that negotiating for better severance terms does not change whether what you were first offered is fair or whether a court is likely to award you more or less. Severance negotiations are almost never shown to a judge.
What if you get another job before your severance period expires? A court will deduct, dollar for dollar, any income earned through other consulting or employment during the severance period and credit that amount back to your former employer. This is why there are clauses in most severance packages that require you to disclose when you find other work, which causes the severance to cease or triggers payment of a portion of the remaining amount.
Like most of the other terms of severance packages, what happens when you find other work can also be negotiated. Therefore, good lawyers will consider your prospects for re-employment when providing advice about the fairness of your severance offer. For someone confident they will quickly find other work, a package may be far more advantageous if payment is structured as an upfront lump sum rather than spread out over time and contingent on unemployment.
In addition to your salary, all non-financial terms, such as health benefits, pension contributions, registered retirement savings plan (RRSP) matching payments or other non-discretionary perks you received while employed, should be continued for at least the minimum statutory periods required by legislation.
Almost all companies get this much correct. However, many packages come up short by failing to address the continuation of these benefits thereafter. A proper severance package should provide you with everything you would have received had you remained employed for the severance period, or at least a payment in lieu of the value of any benefit that cannot be continued.
There are many different ways to describe the economic value of something, but when reviewing severance, make sure it corresponds to your total pay. Unfortunately, this is one section of severance packages where many employers try to cut corners.
In a case I took on last week, a sales agent was given what the employer eagerly described as a one-year severance offer. But after review, it consisted only of his base salary. Considering that commissions represented about 50 per cent of this individual's compensation, his offer was really only worth six months' pay.
Courts award wrongful-dismissal damages based on total compensation. Therefore, commissions, non-discretionary bonuses, on-call pay and sometimes even regular overtime should be included.
Increasingly, employees are signing employment agreements that purportedly operate to later limit their entitlement to severance. Courts will adhere to these contracts, but only if properly drafted, fairly implemented and worthy of being enforced. Only a handful of contracts will meet this test. There are numerous recent cases in which courts refused to enforce an employment contract signed many years earlier, often by an unsuspecting junior employee.
If your ex-employer is relying on anything you signed to limit your severance, don't just take their word for it – ensure you have an expert take a very close look.
I have quickly obtained improvements by pointing out to employers that the consequences of a judge striking a contract down in one case will be used as a precedent for any other employee who signed the same standard contract.
Daniel Lublin is a partner at Whitten & Lublin, representing both employers and employees in workplace legal disputes.