Severance Pay Basics

Losing a job, especially when unexpected, is a nightmare for most employees. Worrying about finding another job, paying bills, and covering health insurance premiums between jobs stresses any employee who has been terminated or laid off. Fortunately, you can reduce these fears by educating yourself on severance pay basics long before the need arises. Arm yourself with knowledge so that you will know how to respond if the worst occurs. Many employees have been led to believe that severance packages are rare, but according to a recent study, 97 percent of U.S. businesses reported offering some form of severance to workers.

While Texas does not legally require employers to offer severance pay, there are a number of facts and bargaining chips that can work in your favor when negotiating a severance package.

If have been experiencing issues at work, such as discrimination, wrongful suspension, or wrongful termination, contact us for a free consultation with our legal team.

Useful Advice for Negotiating Severance Pay

  • If you are over 40, you have the right to take 21 days to review a severance agreement under Federal law. Regardless of your age, it is always a good idea to ask for time to review any termination agreements offered by your employer.
  • Executives and CEOs typically demand 6-12 months of severance pay. If you held an executive title or worked with the company for a long time, you could (and should) leverage that information during negotiations.
  • Money is not the only thing you can negotiate. Consider requesting other perks, such as an extension of benefits, stock options, assistance finding a new job, removal/reduction of non-compete restrictions, and positive references (just to name a few). Putting “all your eggs in one basket” weakens your negotiation stance and overlooks other benefits that can be just as important as money when you are facing unemployment.
  • When calculating severance pay, make sure you take into consideration any unpaid wages and overtime, as well as accrued vacation and paid leave. Do not leave any un-paid income on the table.
  • Negotiations are a two-way street. It helps to know what you have to offer that will benefit your employer’s business. Fortunately, there are several legal agreements that protect employers after termination of an employee that you can leverage into an improved severance package. Here are a few of the most common:
    • A liability release releases your employer from liability for things like wrongful termination, discrimination, retaliation, harassment (and more). This is essentially a promise “not to sue” and provides a substantial amount of negotiating leverage. The average lawsuit could cost a company more than $10,000 in legal fees alone, so a liability release provides significant cost savings for an employer (savings that should translate to an improved severance package for you).
    • A non-disparagement clause protects your employer’s reputation by restricting you from saying negative things about the company, its officers, directors, or employees, post-termination. Your willingness to protect your employer’s reputation with a non-disparagement clause could serve as an effective negotiation tactic.
    • A non-compete or non-solicitation agreement protects your employer’s business advantages by ensuring you will not poach clients, compete with their business, or recruit fellow employees to work for a competing company. Employers should offer severance that is in proportion to the restrictions they want to place upon you post-employment. The more restrictive a non-compete or non-solicitation agreement, the more your employer should be offering by way of severance.
    • A non-disclosure agreement protects confidentiality, trade secrets, and other important company information. Employers have a strong interest in protecting business secrets and should incentivize employees financially for compliance with non-disclosures.

Protect Yourself (& Your Family) While You Search for New Employment

If you have already received a termination notice, you will want to arm yourself with an experienced severance negotiator who can help you negotiate a severance that works for you.

As Texas employee lawyers, we understand just how scary losing a job can be. Our lawyers have been providing severance pay representation and advice to Texans for more than 30 years because we believe every employee deserves a fighting chance.

If you’re asking how to improve your severance package, contact Jackson Spencer Law for a free consultation.