Severance pay is a common agreement that is negotiated between an employer and an outgoing employee. Under the terms of a severance agreement, the employee generally agrees to relinquish any future claims against the employer in exchange for additional pay and benefits after termination. However, there is no federal law governing these agreements. The terms of the package are strictly up to the employer and employee. Nonetheless, severance benefits are often in the best interest of both parties, as they can prevent lengthy and costly court battles.

Points of Negotiation

When entering into a severance pay negotiation, both the employer and the employee must be careful that their own interests are protected. The wording of the agreement is of utmost importance. Generally speaking, the severance agreement will contain specific language that releases the employer from future claims. Many agreements also prevent any future claims against the employee.

The exact dollar amount and terms of payment should also be specified. The dollar amount is generally dependent on the employee’s length of employment and final pay rate, as well as the financial status of the employer.

The agreement should also cover the mechanics of the employee’s departure, including the timing and the explanation that will be given to subordinates and those in other departments. Many employees also request a written letter of recommendation and assistance in finding a new job.

Key employees may be receiving additional benefits, from a company car to an apartment, use of a private jet and other high-end perks. Some employees are content to simply give up the perks, while others negotiate continued use of certain items or perhaps a buyout of the car or apartment at a reduced price. The terms of such an agreement will vary widely depending on individual circumstances.

Legal Considerations

Although there is no federal law specifically covering severance agreements, a severance agreement serves as a legal contract and will be treated as such in court. For example, if the employee signs a release of liability against future claims without receiving anything in return, then the release is not considered legally valid. Finally, a company may be required to pay severance if it has stated in writing, such as in the employee manual, that it will do so, or if it has a history of paying severance to outgoing employees.

Laws against discrimination also govern severance agreements. A company with a history of paying severance is required to pay at the same rate to all outgoing employees regardless of gender, race or other protected class membership. Both the employee and the employer should investigate past severance packages in order to determine the proper rate.

Attorney Involvement

Many severance negotiations are marked by fear, anger, distrust and other negative emotions, which can interfere with the negotiation process. Therefore, it is often advisable to involve an employment attorney in the process. Experienced attorneys can consider all points of a typical severance agreement and those points that may be specific to a single case. They can help develop a package that is equitable and legally enforceable.