New York City Severance Negotiations Lawyer
New York employment lawyer Steven Mitchell Sack has represented thousands of fired executives, officers, managers, owners, and employees to recover:
- Retirement Benefits
- Medical Benefits
- Retraining and Outplacement Benefits
Offers of Severance Pay
Although there is generally no legal obligation to pay severance monies, most employers in the United States do offer such payments when a firing is due to a group layoff, business conditions outside the employee’s control (such as reorganization), or reasons other than employee misconduct. However, there may be a legal obligation to pay severance when:
- You have a written contract stating that severance will be paid
- Oral promises are given regarding severance pay
- The employer voluntarily promises to pay severance
- The employer has a policy of paying severance and this is documented in a company manual or employee handbook
- The employer has paid severance to other employees in similar firings and thereby has created a precedent
If you are fired and are not offered severance, it is advisable to request a meeting with a qualified representative of the employer to discuss clarification regarding severance and available wage equivalents. Many employers are fearful of the increasing amount of employee-related litigation and are flexible in easing the departure of terminated individuals. Thus, you should begin the discussion by appealing to corporate decency and fair play. For example, it might be stated that severance pay is needed because you anticipate it will take longer to find a suitable job than the amount of severance currently offered. Always be polite and act professionally; being vindictive or making threats won’t solve anything.
Most employers have different policies regarding severance depending on the industry and company. However, it is recommended that you attempt to receive one month of severance for every year worked as a starting point. If this can be achieved, you can leave the company knowing that you have received a fair severance offer. Although severance pay is a common problem for individual employees whose employment has been terminated, the extensive merger and acquisition activity in recent years has caused the issue of severance pay to become one of large-scale financial and legal significance. If your company is sold and you continue to work for the new employer, you may be able to assert rights under ERISA and welfare benefit plans in the event the new employer denies severance to a group of workers at a later date.
Additionally, you may have grounds for a valid lawsuit in the event you have a vested pension but are fired just weeks short of becoming entitled to greater severance, larger monthly pension payments, and improved medical and insurance benefits.
Cases demonstrate the responsibility of employers to comply with all pension laws and ERISA regarding severance when a business is sold or when company policy has created an expectation that the purchasing company will continue an established severance policy crediting employees with prior years of service from the selling company.
If you begin working for a new employer who ceases business operations (i.e., declares bankruptcy) within a relatively short period of time after the hiring, you may have a valid claim of severance from the selling company under certain conditions.
Courts are beginning to recognize the rights of employees to severance in many situations, particularly when there is a massive layoff or group sale of assets due to a merger or acquisition.
STRATEGY: You should not automatically acquiesce to a denial of benefits if you are fired and not offered severance, whatever your particular situation. Most workers are now receiving severance when they are fired; others are negotiating and receiving greater severance than the company’s first offer. Statistics from Steven Mitchell Sack’s law practice support this.
Always be cautious if the employer asks you to sign a release. Generally, releases extinguish potential claims. Employees sometimes voluntarily sign such documents when they are fired, without fully understanding the ramifications of such an act. Later they regret taking such action after consulting a lawyer and learning they forfeited valuable rights without receiving much in return.
Since you may be out of luck if you sign such a document, consider the following strategies whenever you are asked to sign a release:
1. NEVER SIGN A RELEASE UNLESS YOU ARE SATISFIED WITH THE COMPANY’S OFFER. This is reasonable because you should never relinquish a potentially valuable right without obtaining something of value in return.
2. READ THE RELEASE CAREFULLY BEFORE SIGNING IT. Most releases are complicated documents. Many have settlement agreements, releases, waivers, and nondisclosure provisions all rolled into one document.
For example, what exactly does the release say? Are you prohibited from telling others about the terms of your settlement? This is referred to as a “gag order” provision. Many employers insert gag order clauses into releases that require all settlement monies to be forfeited and returned in the event you reveal the terms of the settlement to others. Obviously, you should question this provision and avoid signing it if possible.
Does the release prohibit you from working for a competitor or starting a competing business? Without such a clause you are free to work for the employer of your choosing. This is a valuable right that should never be given up easily.
3. NEGOTIATE ADDITIONAL CLAUSES FOR YOUR PROTECTION. First, make sure the release will be null and void if any monies due under the agreement are not paid. Second, include a guarantee that obligates the parent company to pay all remaining sums due under the agreement in the event a subsidiary corporation becomes bankrupt, insolvent, or fails for any reason to pay the amount due. These are examples of the kinds of points to consider and implement in your agreement.
4. OBTAIN MUTUAL RELEASES WHERE APPROPRIATE. Try to get the employer to give you a release whenever you are giving one to the employer. This is because you want to be sure that the employer can never sue you at a later time for something you did.
5. SPEAK TO A LAWYER IMMEDIATELY WHENEVER THE EMPLOYER REQUESTS THAT YOU SIGN A RELEASE. Not understanding the consequences of their actions, people often waive important rights by signing such agreements. For example, you may be waiving valuable claims based on discrimination, breach of contract, unfair discharge, or additional commissions or other monies owed. Never sign such a release until you are knowledgeable about all potential rights that you are giving up.
The cover letter and releases beginning on page 255 illustrate the kinds of documents you may be requested to sign depending on your particular circumstances.
A competent lawyer can also take other practical steps for your protection. For example, he or she can insist that the release be held in escrow until all sums due under the agreement have been paid. This means that the employer could not rely on the signed release until it had fully performed all of the obligations required by the release. This is important and should never be overlooked.
STRATEGY: If you believe that you signed a release under conditions of fraud, duress, or mistake, it can be rescinded in special cases if you act promptly. Although it is generally difficult to overturn a release, always consult a lawyer immediately if you believe you were tricked into signing one.
One client, an African-American woman over 40, once found herself in such a situation. She thought that she was fired illegally because of her race and age. She was told to sign a release in order to receive severance. But the release she signed was quite short (just a few sentences) and was not artfully drafted. For example, the release did not say that she had 21 days to review it, that she could revoke it up to seven days after signing, or that she had the right to consult a lawyer.
When she met with me, I told her that she had received very little in return for signing the document. I also advised her that she had a decent chance of fighting the release on legal technical terms because it was drafted so poorly.
The woman hired me to contact the company and negotiate a better package. Through my efforts, I was able to disallow the release and get her another $8,000 in severance. In hindsight, the company probably thought that $8,000 wasn’t worth a lawsuit and the poor publicity and wasted manpower that go along with it.
Finally, recognize your rights with respect to releases under the federal Older Workers Benefit Protection Act (OWBPA). The act makes it clear that, in relation to a firing or a resignation of a worker over 40, a company can protect itself from potential violations of ADEA claims by utilizing waivers, provided:
1. The waiver is part of an agreement that specifically states the worker is waiving ADEA rights and is not merely a general release;
2. The agreement containing the waiver does not disclaim any rights or claims arising after the date of its execution;
3. The worker receives value (such as an extra month of severance) in exchange for signing the agreement;
4. The worker is advised in writing of the right to consult an attorney of his or her choosing before signing the agreement;
5. The worker is advised in writing of his or her right to consider the agreement for a period of 21 days before it is effective; and
6. The worker is given at least seven days following the execution of the agreement to revoke it.
When employers request the signing of releases or waivers in connection with mass termination programs and large-scale voluntary retirement programs, the act is even more strict. All individuals in the program must be given at least 45 days to consider the agreement, and each employee must also be provided with numerous facts, such as the class, unit, or group of individuals covered by the program, any eligibility factors for the program, time limits applicable to the program, the job titles and ages of all individuals selected for the program, and the ages of all individuals not eligible for the program.
A benefit of the OWBPA is that all voluntary early retirement programs are now scrutinized closely to determine that there is no chance of threat, intimidation, or coercion to the worker to whom the benefit is offered. Older employees must now be given sufficient time to consider the offer and receive accurate and complete information regarding benefits.
Ask a lawyer to advise you of your rights if you are asked to sign a complicated waiver that you believe does not comply with the requirements of this law.
Finally, as previously stated, the federal Older Workers Benefit Protection Act codifies existing law by providing that an older worker may not waive rights or claims of discrimination under the Age Discrimination in Employment Act unless the waiver is clear, voluntarily signed, part of an agreement where additional severance pay, early retirement benefits, or other monies are given, and the individual is given at least 21 days to consider the agreement containing such a waiver and seven days to change his or her mind after he or she signs it. Speak to a lawyer to advise you of your rights if you are asked to sign a complicated waiver that you believe does not comply with the requirements of this law.
Summary of Things to Know if Your Job is in Jeopardy
1. It may be illegal for a company to fire you to deprive you of large commissions, vested pension rights, a year-end bonus, or other expected financial benefits.
2. It may be illegal for a company to fire you after returning from an illness, pregnancy, or jury duty.
3. It may be illegal to fire you for complaining about a safety violation or other wrongdoing.
4. It may be illegal to fire you in a manner inconsistent with company handbooks, manuals, written contracts, and disciplinary rules.
5. It may be illegal to fire you if the decision to fire you is motivated, in whole or in part, by your age (if you are between 40 and 70), your race or ethnicity, or your gender.
6. It may be illegal to fire a large number of workers and/or close a plant without giving at least 60 days’ notice or 60 days’ severance pay.
7. It may be illegal to fire you if you received a verbal promise of job security or other rights that the company failed to fulfill.
8. It may be illegal to fire a long-term worker when the “punishment does not fit the crime” and other workers were not similarly treated, particularly if you are over 40, belong to a protected minority group, or are a female.
9. If you signed a written contract, reread it. Review what it says about termination, because if the company fails to act according to the contract, your rights may be violated.
10. Try to make copies of all pertinent documents in your personnel file while working. If you have received excellent performance reviews and appraisals and the file indicates you received merit salary increases, you may be able to use this information to successfully negotiate more severance than the company is offering.
11. Refuse the company’s offer to resign whenever possible. This is because if you resign you may be waiving your claim to unemployment and other severance benefits.
12. Avoid accepting the company’s first offer of severance. Stall for time. By doing so, you can increase the chances of obtaining more severance pay and other post-termination financial benefits than the company initially offered.
Finally, as with the other recommendations in this book, the above 12 strategies are merely suggestions and are not intended to be legal advice per se. Therefore, always seek competent legal advice where warranted.
Summary of Negotiating Strategies to Maximize Severance Pay and Retirement Benefits
1. Generally, there is no legal obligation for a company to pay severance unless you have a written contract stating that severance will be paid, oral promises are given regarding severance pay, there is a documented policy of paying severance in a company manual or handbook, the employer voluntarily offers to pay severance, or other employees in similar positions have received severance pay in the past.
2. If you are fired, request an additional negotiating session to discuss your severance package.
3. Stall for time and try not to accept the company’s first offer.
4. Appeal to corporate decency and fair play at the initial meeting. For example, it is better to say, “I am 58 years old and have to pay for two children in college right now, and your offer of just four weeks’ severance will probably put me on the road to financial ruin, since it is unlikely that I can find another comparable job in four weeks,” rather than, “If you don’t pay me more money, I will sue.”
5. Recognize that by asking for many (e.g., 15) financial and other post-termination benefits you may be able to get the company to settle for some (e.g., five).
6. Confirm all arrangements in writing to document the final deal of severance and post-termination benefits; do not accept the company’s promise that “everything will work out.”
7. Insist on receiving more money and other benefits before signing any release or waiver of age discrimination claims.
8. Do not rely on promises from the company that you will receive a favorable job reference. Rather, draft your own favorable letter of reference and get an officer or your supervisor to sign the letter of reference before you depart.
9. Do not be intimidated or forced into early retirement. Recognize that you may have rights, particularly if your early retirement causes you to lose large, expected financial benefits.
10. Be cautious when the employer asks you to sign a release, because you may be waiving valuable rights and benefits in the process.
11. Never resign from a job unless absolutely necessary. If you are given the choice between resigning or being fired, get fired.
12. Select the most favorable or sympathetic person at the company to initially negotiate the deal with.
13. Go above him or her if you don’t achieve what you’re seeking.
14. Never be pressured by the employer into signing a release or making a fast decision.
15. Be persistent; don’t become demoralized.
16. Know your rights, ask questions, and demand answers.
17. Have a game plan in place to help you get what you want.
18. Rehearse what you will say and why it is fair for you to get a better package.
19. Consider early retirement options or other ways to keep you on the payroll such as working freelance or as a consultant where appropriate.
20. Analyze the tax aspects of any settlement.
21. Negotiate for nontaxable benefits or convert unneeded benefits (such as outplacement assistance) into more severance pay when practicable.
Finally, since the above 21 strategies are merely suggestions and are not intended to be legal advice per se, always seek competent legal advice where warranted.
Summary of Negotiating Tips
Wages (Also Referred To As Salary Continuation)
1. Try to stay on the payroll as long as possible.
2. Negotiate for the employer to continue to provide medical, dental, and hospitalization coverage (paid for by the employer) while you are receiving severance wages.
3. Avoid arrangements where you are offered severance for a specified period (e.g., six months) that automatically ceases when you obtain a new job. Rather, make the offer non-contingent on new employment or arrange that differential severance will be paid in a lump sum if you obtain a new job prior to the expiration of the severance period. (For example, arrange that three months’ worth of severance will be paid in a lump sum if a new job is obtained three months before the six months of salary continuation expires.)
4. If severance pay is to be paid in a lump sum, consider asking for it immediately, not in installments over time.
5. Recognize that if you receive salary continuation rather than a lump sum payment, you may be ineligible in some states for unemployment benefits until the salary continuation payments cease; thus, consider the benefits of a lump sum payment rather than extended salary continuation where warranted.
6. Avoid accepting the employer’s first offer: negotiate, negotiate, negotiate.
7. Attempt to receive at least four weeks’ severance for every year of employment.
1. If you have relocated recently at the request of the employer, try to obtain additional relocation allowances.
2. Discuss accrued vacation pay, overtime, and unused sick pay. Be sure you are paid for these items.
3. If you were fired without notice, ask for two additional weeks of salary in lieu of the employer’s lack of notice.
4. If commissions are due or about to become due, insist that you be paid immediately; do not waive these expected benefits.
1. Understand how your bonus is computed.
2. If you were entitled to receive a bonus at the end of the year, ask for it now.
3. Argue that the firing deprived you of the right to receive the bonus if the employer refuses to pay; or,
4. Insist that your bonus be prorated according to the amount of time you worked during the year if this argument is rejected.
Pension And Profit-Sharing Benefits
1. Ask for details regarding the nature of your benefits. Under federal law, you are entitled to an accurate, written description of all benefits.
2. Be aware of all plans, funds, and programs that may have been established on your behalf.
3. If you are fired just before the vesting of a pension (e.g., two months before the vesting date), argue that the timing of the firing is suspect and that public policy requires the employer to grant your pension. If the employer refuses, consult an experienced lawyer immediately.
4. Demand a copy of the employer’s pension and/or profit-sharing plans from the plan administrator if the employer refuses to furnish you with accurate details. (You may have to pay for the cost of photocopying.)
5. Contact the plan administrator immediately to protect your rights if your claim is denied or if you have not received a proper accounting or payment of your retirement benefits from your employer.
1. Request continued use of an office, secretary, telephone, or mail facilities to assist you in your job search, if appropriate.
2. Consider requesting a loan to tide you over while looking for a new job, if appropriate.
3. Consider requesting continued use of your company car or ask to buy the car or take over the lease at a reduced rate, if appropriate.
4. Request that the employer pay for outplacement guidance, career counseling, and resume preparation services including typing and incidental expenses, if appropriate.
Medical, Dental, And Hospitalization Coverage
1. Does coverage stop the day you are fired, or is there a grace period? Ask for a copy of the applicable policy.
2. Can you extend coverage beyond the grace period?
3. Be sure to have your benefits explained to you if you do not understand them.
4. Can you assume the policy at a reduced personal cost? This is sometimes referred to as a conversion policy.
5. If you are married and your spouse is working, you may be covered under your spouse’s policy. If so, do you want to continue paying for your own policy?
6. Be sure the employer has notified you regarding your rights under COBRA.
1. Can you convert the policy to your benefit at your own cost? Don’t forget to inquire about this.
2. Is there any equity in the employer’s life insurance plan that accrues to you upon termination? Inquire about this and ask for a copy of all policies presently in effect.
Your Cover Story
1. Clarify how the news of your departure will be announced. Discuss and agree with management on the story to be told to outsiders.
2. Consider whether you want it to be known that you resigned for personal reasons or that you were terminated due to a “business reorganization.” These are neutral explanations that are preferable to firings for misconduct or poor performance.
3. Recognize that if you resign, you may be forfeiting unemployment benefits. Thus, avoid resigning wherever possible. Although you may prefer that outsiders be told you resigned for personal reasons, confirm with the employer that you will be able to apply for unemployment benefits. That way your local Department of Labor will be advised that there was a termination (as opposed to a resignation, since this is what really happened) and you can still tell outsiders you resigned.
4. Request that a copy of a favorable letter of recommendation be given to you before you leave the company. The letter should state the dates of your employment, the positions held, and that you performed all of your job duties in a diligent and satisfactory fashion. If possible, the letter should be signed by a qualified officer or supervisor who worked with you and knows you well. Do not rely on promises that the employer will furnish prospective employers with a favorable recommendation, since many fail to do this after employees leave the company. Thus, always attempt to have such a letter in hand before you leave.
5. Request that key members of the company be notified of your departure in writing. If possible, approve the contents of such a memo before distribution. Written memos can dispel false rumors about your termination. A positive memo may assist you in obtaining a new job. Remember, news of a firing usually spreads rapidly; you don’t want to be the subject of false rumors or innuendo.
1. Determine if you are entitled to receive additional benefits under a severance contract or golden parachute.
2. Speak to an experienced employment attorney immediately to protect your rights if the employer refuses to provide all the benefits specified in your contract.