Negotiability of Severance Agreements for Mid-Level and Executive Employees

"Can I negotiate the terms of my severance package with my employer?"

This may be the single most commonly asked question received by our business law group and other business and employment law attorneys in Boston, Massachusetts. Due to the exceedingly large number of scientific, technical, professional and managerial employees within the greater Boston metropolitan area, the issue of severance packages becomes an area of frequent discussion. Parker | Scheer represents numerous Boston businesses, permitting our employement law attorneys to see the issue from both a management and employee perspective.  

The simple answer to the inquiry as to whether severance agreements are negotiable is that severance agreements and all voluntarily entered into agreements are, indeed, negotiable. The real question is whether there is an incentive or disincentive on the part of an employer to engage in negotiation. This, of course, depends on a number of factors.  

Two primary goals of employers in offering employees severance packages are: (1) fundamental fairness for longer term employees; and (2) limiting the employers' exposure to a lawsuit or administrative claim. Within these areas are various subsets. For instance, while a company may wish to be fundamentally fair, it may also use severance to send a message of fairness to its remaining employees and the community. Likewise, while a company may wish to generally limit its exposure it may, for instance, perceive a particular problem with failure to follow its own termination procedures and therefore may view a particular severance agreement as a more specifically targeted limitation of liability.  

While there are no absolutes as to when or how much an offered severance package may be modified through negotiation, there are several trends which we have observed in our practice and which, we have no doubt have been observed by other Boston business lawyers. First, if the employee is laid off as part of a broad layoff, the opportunity for significant negotiation of the severance offer will be much more limited. Typically, in larger layoffs, there are specific criteria which dictate both the severance compensation and the benefits received.   Often the criteria are related to the employee's length of service and position within the organization.

When the separation is part of a small layoff or an individual termination or layoff there is a greater likelihood that individual terms will be subject to negotiation. This does not mean that there can be no negotiation in the first instance, as the Parker | Scheer business law group has negotiated better severance "deals" even in the face of a mass layoff with objective severance criteria.   Conversely, severance is not always open to negotiation even for the high level single employee termination.  

Interestingly, while one might believe that severance payments would necessarily be linked to whether a termination was "for cause" or "without cause", that is not necessarily the case. Of course, in the egregious case of employee theft or other objective misdeed, it is rare to even see a severance agreement. Where the "cause" is more subjective, however, such as an employee failing to cooperate with co-workers, severance agreements are much more common and may be the subject of significant negotiation.

In addition to the amount of compensation one might receive under a severance agreement, there are often several other benefits which may be negotiated, such as insurance premium payments and outplacement services. One term, which is often overlooked, is what the current employer may disclose to a potential future employer. For instance, if the departure was adverse, the employee may negotiate for a neutral reference whereby the employer may only disclose the employee's dates of service and position held. If the parting is on good terms the employee might wish to guarantee that his/her positive performance and conduct be highlighted in references given to potential employers.  

For both businesses and employees, lawyers play an integral part in the negotiation process.   For the employer, the attorney can assess exposure and help to craft appropriate severance agreement terms and language. For the employee, an attorney can guide the employee through the process and acquaint him/her with what is likely and not likely in a negotiated severance package.

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For more information on Massachusetts employment law or if you are seeking an employment law attorney or a business lawyer for any other needs, please contact Barry Scheer. If you prefer, you can also telephone our offices in Boston seven days a week at toll free 866-414-0400.