Severance Package: Terms Negotiation and Common Disputes

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 What is a Severance Package?

In employment settings, a severance package may be offered to an employee in connection with their termination. Usually, it includes pay or some benefits, which may vary from individual to individual.

Although many employers offer severance packages, there are no specific severance package laws that make them mandatory. The employer is only legally required to provide unpaid wages or unpaid employment benefits if the terminated employee is entitled to them.

Additionally, there is no standard for determining what is included in a severance package. Similar to other employment agreements, severance packages may be negotiable. They may vary based on the particular employee or the employer’s policies, and may include different items. Many times, a severance agreement will require an employee to sign an agreement not to sue the employer for wrongful termination in order to accept it.

There are only two situations in which an employer may be legally required to provide severance pay. A small number of states require employers who are closing a facility or laying off a large number of workers to pay a small severance.

A second situation may be when an employer led an employee to believe they would be paid a severance, which may be shown by:

  • A written contract that states severance would be paid by the employer;
  • An employee handbook or personnel policy that states employees would receive severance pay;
  • A company history of pay severance to previous employees in the same position; or
  • An oral promise by the employer that severance would be paid.

What Is a Typical Severance Package for a Layoff?

While the details of severance packages may vary, they are often based on the length of employment. For example, in the severance package, the employee may offer a week’s pay for every year an employee has worked for the company. However, there is no standard severance package and an employer may offer whatever amount they wish, so long as it does not violate any laws.

Additionally, some employers may offer different severance packages based on the seniority level of an employee. For example, a company may offer its executives or managers a higher severance package than an entry-level employee.

It is important to note that severance pay or severance packages do not always come in the form of money. Instead, a company may:

  • Extend the employee’s health benefits past termination;
  • Cover some future medical expenses;
  • Provide the employee with outplacement services; or
  • Offer various other employee benefits.

In some cases, a severance package may include both cash payments and benefits. It is important to remember there is no average severance package and the terms will depend on the employer’s policies or preferences and any other pre-negotiated terms between the employer and the employee.

Can I Negotiate the Terms of a Severance Package?

In many cases, a company will have employment policies that provide the manner in which severance packages are determined. These employment policies will usually include provisions stating when an employee is entitled to severance pay, how it is calculated, and what the severance package will include.

The details of a severance package may also be addressed in an employment contract between the employer and employee. In these cases, the employer would be legally entitled to offer the employee severance pay according to the contract terms.

In some cases, severance package negotiation may be possible. If negotiation is permitted, the following factors will likely be discussed during the negotiations with an employer:

  • The employee’s number of years with the company;
  • The employee’s level or role within the company;
  • The size of the company; and
  • The details of the severance package as outlined in the company policy or employment contract, if any.

An employee is always encouraged to obtain the services of a severance agreement attorney for negotiations regarding their severance package. An attorney will be familiar with local laws, be able to review any applicable contracts, and help with obtaining the best severance package agreement possible for the employee.

Will My Severance Package be Taxed?

Yes, an individual’s severance pay is subject to taxation. Severance pay is viewed as wages. Therefore, it includes the normal withholding and employment taxes the individual would see on their regular paychecks.

Although the taxation may seem odd because the pay was not earned for work performed, the severance check will still be taxed. It is important to note that an employer is not required to clearly label the pay as severance pay in order for it to be severance pay.

What are Some Common Severance Package Disputes?

As with any type of employment agreement, a severance package can be the basis of legal disputes or conflicts. These may range from a minor dispute to a company-wide violation that affects a large number of employees.

Common severance package disputes may include:

  • Discrimination against an employee based on their age, sex, nationality, or other characteristic. For example, if an employer denies a severance package based solely on an employee’s race;
  • A conflict that involves some type of fraud or misrepresentation in the severance package or payment was negotiated. For example, if the employee was tricked into signing an agreement that contained different terms than those discussed during negotiations;
  • A disputes over the amount of pay, types of benefits, or other severance package terms;
  • An issues with non-payment of the severance pay or withholding of the benefits that were promised to the employee; or
  • Various other conflicts.

These types of disputes are often complex and involve multiple areas of law. In many cases, they will require legal action to resolve.

If I Accept a Severance Package, Can I Still Sue?

Many severance package agreements contain a clause that requires an employee to waive their right to sue the employer for wrongful termination. In most cases, the employer will not provide any type of severance pay until this is signed.

In general, it is legal for an employer to provide a severance package in exchange for the employee’s release of the right to sue. A court will usually uphold a severance agreement. There are, however, certain situations where a severance agreement may be held unenforceable.

If an individual has accepted severance pay, and then sues for wrongful termination, they may be required to pay back the severance pay if the court determines the agreement was invalid. However, if no such waiver exists, an individual will generally be permitted to sue their employer in court regarding a severance package dispute.

Do I Need a Lawyer for Help with a Severance Package?

Yes, it is extremely important to have the assistance of an experienced workers compensation lawyer for any severance package issues. It is essential to consider how a severance package may affect your legal rights and your ability to bring a claim against your employer.

If you believe you are being wrongfully terminated, you should contact a severance agreement lawyer. A lawyer will be able to review your case, any relevant or applicable documents, and represent you during court proceedings, if necessary. Every situation is different and a lawyer may be the difference between a successful case and an unsuccessful case.

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