Image depicting severance pay and a severance agreement

Is There a Right to Severance Pay?

Even the best employees can be shell shocked by a job termination. The next question that probably arises is: Do I have a right to severance pay?

There is no legal right to be paid severance, with a few exceptions. You may be able to negotiate a better severance package, however. At Gardner Employment Law, we have years of experience in negotiating severance packages. If you need advice about what you should do on a severance offer, give us a call.

Do I Have a Right to Severance Pay?

No, generally there is no right to be paid severance. This is due to the “at-will employment” doctrine. Neither the Fair Labor Standards Act (FLSA) nor the Texas Unemployment Compensation Act requires payment of severance.

There are some secondary legal vehicles that may carry the right to severance pay, depending on the terms. Those include severance pay guaranteed in a union contract, an established company severance benefit policy that will be described in your employee handbook, or a promise to pay severance contained in an employment contract.

As we discuss in “Wrongful Termination or At-Will,” at-will employment means that either party, the employer and an employee, can end the employment arrangement at any time for any reason – so long as it’s not an unlawful reason. You cannot be fired for reporting sexual harassment, discrimination, or an unsafe working environment, according to the Occupational Safety and Health Act. The only legal requirement is that the employer must pay the terminated employee his or her final paycheck no later than 6 days after termination, as required by the Texas Pay Day Code.

Types of Severance Pay

Some employee benefits you can possibly receive upon departure or for which you may be able to negotiate are described in the National Law Review. They include:

  • An arbitrary amount of money
  • A percentage of your base salary
  • Extended Stock Option Exercise
  • Payment of the premiums for health insurance for a period of time
  • Executive-Level Transition Services

You may already “own” the right to other forms of payment, such as a bonus that you have earned by the terms of the compensation plan or vested stock options. You can read more about those rights in Unpaid Commissions, which applies equally to bonus payments, and in Employee Stock Options in the section that discusses vested stock options.

The terms of severance that your employer offers are negotiable. With the proper strategy, most employees can walk away smoothly with a severance package in hand.

How Do I Get Severance Pay?

While employers have somewhat of an upper hand with the “at-will” employment doctrine, employees also have leverage. Employers want their former employees to leave smoothly so that the company does not suffer and there is little disruption at work. The company expects that you will protect its trade secrets or not disparage the company’s good name.

The primary reason why employers offer to pay severance is to gain your signed release of any and all legal claims. Most managers tremble at the thought of being embroiled in defending against a terminated employee’s claims. Resolving legal claims disrupts business, takes much time away from production, and carries the risk that the company might lose. Depending on the facts that form the foundation of any legal claim, this one item can give an employee substantial leverage in negotiations for “severance.” In reality, the payment would be a settlement of potential claims. You can call it severance pay, settlement proceeds, or just “money.” The bottom line is that companies want to buy peace and never hear from the departing employee again.

How Do I Negotiate Greater Severance Pay?

Negotiating for more severance pay depends almost entirely on the strength of your position, your leverage. Remember employment at-will: The employer has the right to terminate you for any reason, so long as it is not an unlawful reason, and you have no right to severance. Period. You must overcome that hurdle.

Once you have determined your leverage and how strong that leverage is, you must develop a negotiation strategy. The National Law Review states that there are 4 considerations executives should make:

  1. Precedent and Practice: Think outside the scope of U.S. law and more about the unspoken “rules” within the company. Find out about how past negotiations by previous executives went, what worked or what didn’t. Even if you can’t find that information within your company, research how your industry typically operates.
  2. Post-Employment Obligations: If your company requires that you smooth the path for transition by training your successor, you may be able to negotiate compensation for your time spent training. By providing yet another way you benefit the company, your leverage is enhanced.
  3. Public Perception: Companies are especially concerned about how a termination affects their public image, especially if the executive is well liked by subordinates. By engaging diplomatically and playing into how the company wishes to maintain a good image, you may be able to increase the value of your severance package.
  4. Possible Claims: We discussed this in the previous section. While many terminations may be unfair, there are but a few instances when a termination is unlawful, creating the facts for a legal claim. Discrimination, whistleblowing, contract breach, or lack of equitable relief on account of shareholder status are all possible claims. Assess whether you have any facts to support a claim and discuss the situation with an employment attorney to bolster your severance negotiation strategy.

There are many clear incentives for an employer to provide you with severance pay. These can include no legal claims or other negative consequences, a good image, or lower unemployment insurance costs. Even if you are hesitant to waive your right to a legal claim after termination, you can still make good use of other strategies at the negotiation table to provide leverage.

Why Should I Have a Severance Agreement?

You may wonder whether you need a contract with severance benefits when things are going smoothly at work. Think of this contract like insurance protection. If you don’t have an employment contract setting forth the terms of what you receive whenever you leave the company, you risk a lack of financial security, especially if you are faced with an abrupt termination down the road.

I have had many clients unexpectedly receive a termination notice after years of service. Don’t assume the same cannot happen to you. Even if you think collecting unemployment benefits is easier, that amount is quite limited. With a severance agreement, you can better insure your financial situation for a longer period.

In addition to financial safety, a negotiation early in your employment can solidify your relationship with your employer. In the early period, which I call the “honeymoon,” your termination usually is not on the employer’s radar at that point, so you should take advantage of this period of good will. The goal is to negotiate a win-win deal resulting with both parties being satisfied. An amicable negotiation at this point can benefit the company and secure severance pay should your employment end. Additionally, the process can avoid acrimony whenever you do leave and maintain a network of managers who would not hesitate to provide you a recommendation.

Note that some severance packages could preclude you from receiving unemployment benefits. The Texas Unemployment Compensation Act provides that an employee may not receive unemployment benefits for the period that the employee receives severance. This pertains to a severance payment offered by the employer based on a formula or on increments of wages, e.g., severance of one month’s salary for each year of employment, However, this limitation does not apply to severance pay that is negotiated based on settling possible legal claims. In that instance, an employee can receive both unemployment compensation and the negotiated severance pay.

Do You Need Legal Advice?

At Gardner Employment Law, we can assist you in receiving the severance package you deserve. If you need help securing severance pay, whether it is contract guidance, negotiation strategies, or general advice, we can provide it. Contact us today.

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