Why Do Employers Offer Severance Agreements?

A severance agreement has been delivered to you to evaluate and sign. This is a legal document that has legal ramifications. You’re probably dealing with serious job insecurity right now; if you don’t have another job lined up, there’s no telling how long you’ll be unemployed.

You may be upset by this news, which may have come out of nowhere. You might not even know why you’re being let go. Yet, with all of these mixed feelings, you need to decide whether you should sign it or not. Is the employer really looking out for your best interest? We believe the best way to get you up to speed on this issue is to create this blog post based on why employers offer severance agreements.

What Exactly Is A Severance Agreement?

A severance agreement is a legal arrangement between an employer and an employee. In most cases, the employee will be giving up their right to sue the employer, and in exchange, the employee will be given a sum of money or other benefits.

Other concerns that the employer and employee can agree on include non-compete agreements, confidentiality agreements, and non-solicitation agreements. By signing the contract, both the employer and the employee establish their intent to be bound by the provisions of the agreement and to resolve any problems between them, as well as their agreement to terminate the employment relationship.

Why Am I Being Offered A Severance Agreement?

To understand the “why” behind your employer’s decision to offer you a severance agreement, we have to look at it from the employer’s perspective. An employer’s decision to enter a severance agreement may be the most cost-effective, least disruptive, and sensible business decision they can make when terminating an employment relationship. Because attorney’s fees can be granted in employment cases, it makes little sense to hire outside counsel to litigate a case brought by an ex-employee and end up paying their attorney as well. Offering severance pay is part of the employer’s attempt to catch potential issues now through agreements, policies, and procedures and resolve them before costly and disruptive litigation occurs.

Is My Employer Providing Me with Adequate Severance Pay?

It’s a basic way of looking at it, but in the end, it’s just a business transaction. Now, whether it’s a good deal for you is determined by the seriousness of the rights you’re giving up vs. the compensation you’re receiving in exchange. This cost/benefit analysis can be complex in practice, so one should seek the advice of an experienced employment law attorney before signing a severance agreement.

And, while severance pay is typically defined in terms of your current income (for example, “three months’ salary”), it’s not salary; it’s a sum of money or perks given to you to keep things as civil as possible from the employer’s perspective.

Can I Negotiate The Terms Of A Severance Agreement?

Yes, and your bargaining power is determined by a variety of factors.

• What are the specifics of your departure? Are they terminating your employment because they believe you have done something wrong? Are you merely a victim of a mass layoff?
• What is the size of the company? In general, the larger the company, the less likely it is to amend the provisions of a typical severance agreement that has already been subjected to extensive corporate examination and approval. Smaller businesses subject the agreement to less bureaucracy—you may have more wiggle room in this scenario. Please keep in mind that these are very broad generalizations based on anecdotal evidence; results vary.
• How significant are your desired term changes? For example, do you want to merely prolong your health benefits for another month, or do you want to demand significantly more compensation than they are offering?
• What legal claims do you have against the corporation, if any? How credible are those claims? Is the company aware that you have an employment attorney? Here’s your leverage. If you have an experienced employment law attorney representing you, the company may be more concerned that you’re taking this seriously and may make a claim at some point in the future.

Numerous other elements influence whether you can realistically attempt to negotiate any of the terms of the agreement. The takeaway? Having a severance agreement offered to you is definitely a “consult an attorney” kind of issue.

Contact Our Employment Law Attorneys Today

If you’re in Memphis, TN; St. Louis, MO, or surrounding areas (including Germantown, TN, Collierville, TN and Clayton, MO) and wonder whether your employer’s proposed severance package is fair, we have the answers you need. We will help you interpret, negotiate, and pursue claims under employment agreements and severance agreements. Call us today at 901-737-7740 or contact us online to pursue your benefits and protect your rights.