When faced with a severance agreement, nearly all employees find themselves navigating uncharted territory and face uncertainty because they want to avoid mistakes when negotiating a severance agreement. Typically, most employees have little to no prior experience with severance agreements, let alone negotiating the terms of a severance agreement. This lack of familiarity can lead to critical missteps that weaken an employee’s negotiating position or result in unfavorable terms. For example, employees sometimes rush to sign without thoroughly understanding the terms or they overlook vague or overly restrictive clauses that can significantly impact the benefit provided by the severance agreement.
Matt Ruggles has negotiated hundreds of severance agreements for California employees during his 30+ years as an employment lawyer. Drawing on his extensive experience, Matt authored this blog to help you avoid the most common “rookie mistakes” employees make during severance negotiations and to provide you with practical tips to navigate the process effectively.
Mistake #1. Asking for an Extension of the 21-Day Review Period
Why employees often ask for an extension
If you are 40 years old or older, the severance agreement ordinarily will contain a “review and revocation” period as one of the terms of the Agreement, normally placed towards the end of the Agreement. In the case of an individual termination, the review period must be 21 days pursuant to the Age Discrimination in Employment Act (ADEA), a federal law that prohibits age discrimination; the Agreement also will contain a seven (7) day revocation period (or “cooling off” period) that allows you to revoke your consent to the Agreement for a period of seven (7) days following the date you signed the severance agreement. This particular term is mandatory in all severance agreements for employees aged 40 years or older, and applies regardless of the nature of any potential known or unknown claim you may have against your employer. Even though the 21-day review and 7-day revocation period is mandatory, standard language, Employers will inform the employee asked to sign the severance agreement that the employee has 21 days to review the agreement.
Employees frequently request an extension when presented with a severance agreement because they feel overwhelmed by the complexity of the document or uncertain about their next steps. The standard 21-day period for review, while seemingly sufficient, can feel short when dealing with legal jargon, the emotional toll of job loss, and the pressure of making a life-altering decision. Many employees also use the extra time to seek legal counsel, consult with family members, or explore their options for future employment before committing to the terms of the agreement. However, the 21 day review period is the statutory minimum review period required by the law; failing to sign the severance agreement prior to end of the 21-day review period does not mean that the severance offer will be revoked or withdrawn by the Employer. In fact, in Matt’s 30+ years of experience, Matt has never once seen an Employer revoke a severance agreement offer based on the 21-day review period.
How the request for an extension signals indecision or lack of seriousness to the employer
While asking for an extension may seem like a reasonable request in order to give the employee “breathing room” to review and understand the Severance Agreement, it unintentionally signals to the employer that the if the severance negotiation is unsuccessful, the employee will accept the initial severance offer. In a nutshell, asking for an extension of the 21-day review period expresses to the Employer the following message: the employee would like to try to negotiate a better deal, but if that doesn’t work, the employee will accept whatever the Employer is offering.
As a result, asking for an extension of the 21-day review period practically guarantees that the Employer will not improve the severance offer. Why would the Employer do so when they now know that the employee will take whatever is being offered at the end of the extension? The simple answer is the Employer won’t do a thing in response to any attempt to negotiate, and will simply wait for the employee to sign the Severance Agreement as soon as the extension expires. Matt’s very strong advice is to never ask for an extension of the 21-day review period.
Tips for preparing to make decisions within the standard 21-day period
Employees should approach the process with a clear plan. Start by thoroughly reviewing the agreement as soon as it’s received, identifying any confusing or concerning clauses to address with an attorney. Seek legal advice early in the process to gain clarity on your rights and any negotiation opportunities. Additionally, prepare a list of priorities, such as financial compensation, benefits, or restrictive covenants, to guide your discussions with the employer. Matt’s advice is this: whatever you do in response to the proposed severance agreement, do not ask for an extension of the 21-day review period.
Mistake #2. Demanding Far Too Much Money (or Benefits Other than Money)
Why unrealistic expectations and overreaching can backfire
Most employees that attempt to negotiate a severance agreement make the initial blunder of asking for far too much money or other non-monetary benefits in exchange for signing the Employer’s proposed severance agreement. This happens because nearly all employees grossly overestimate the value of their service to the employer and grossly overestimate the value of any potential claim against the Employer arising from the termination of employment.
Having unrealistic expectations during severance negotiations can be a costly mistake for employees. While it’s natural to aim for the best possible outcome, making excessive or unreasonable demands can alienate the employer and shut down productive negotiations. Overreaching may lead the employer to withdraw concessions already on the table or refuse further discussions altogether, leaving the employee with less favorable terms than they might have secured with a more pragmatic approach. Striking the right balance between advocating for your interests and maintaining realistic goals is key to avoiding a breakdown in negotiations.
Unless you are a top level executive, an employee negotiating a severance agreement will almost never get more than one (1) year of compensation as a severance payment. Instead, employees looking to maximize their severance offer should be thinking in terms of weeks or months of salary, not years. That means that unless you have an exceptionally long tenure with the company, or you have an exceptionally good potential claim against the company, the total severance payment to you is likely to be several months of wages.
For the same reason, demanding continuation of fringe benefits as part of the severance agreement also tends to fail. For instance, Matt often hears that an employee being offered a severance payment is demanding to keep the company-provided vehicle as a part of the severance agreement. Unless the vehicle is a broken down, high-mileage older vehicle, demanding to keep the vehicle adds tens of thousands of dollars to the cost of the severance agreement for the Employer. Demanding COBRA payments for post-employment healthcare falls into the same category of mistakes, and rarely results in more than a handful of COBRA payments.
Matt’s advice on what to ask for is this: you are not going to get rich from a severance payment, and you are very unlikely to get a sufficient payment to stop working for any real amount of time. Rather than ask for the sun, moon and stars, consider the minimum amount of money you will need to support yourself and your family for the next six (6) months, and then plan to negotiate down from that number. Remember that Employers generally are not required to make any severance payment to a terminated employee, and that the Employer usually is in a stronger negotiation position than the terminated employee. That means that you must compromise on the amount of money you are asking to be paid, and that it’s normal to be unhappy about the level of compromise you need to make to gain the Employer’s agreement to the increased severance offer.
How to calculate a reasonable severance demand based on your situation
- Length of Employment and Role Impact: Your tenure with the company is a critical factor. Long-term employees bring institutional knowledge and relationships that can make their departure more disruptive. Highlight your contributions and the potential impact on operations when negotiating.
- Salary, Bonuses, and Benefits: Calculate the total value of your compensation package, including base salary, performance bonuses, and benefits such as health insurance and retirement contributions. Factor in unused PTO or vacation days owed to you.
- Restrictive Covenants: Review any non-compete, non-solicitation, or confidentiality agreements that may limit your post-employment opportunities. Use these as leverage if they pose a significant constraint on your ability to earn a living.
- Time to Secure a New Role: Estimate the length of time you may need to find comparable employment with a subsequent employer. Consider your industry’s hiring trends, the job market in your region, and your financial needs during this period. Employers often appreciate a realistic approach to bridging the transition gap.
- Potential Legal Claims: If you have credible legal claims such as discrimination, harassment, wrongful termination, or unpaid wages, include these as leverage in your calculations. Employers may be more willing to agree to a favorable severance package to mitigate litigation risks.
- Company-Specific Leverage:
- Knowledge of Sensitive Information: Your access to proprietary data or confidential information can make your cooperation in safeguarding this data a bargaining chip.
- Reputation and Public Relations: Highlight the importance of handling your departure amicably to avoid any negative publicity, especially if your role or situation has public visibility.
- Industry Benchmarks: Research severance agreements offered in similar roles or industries to establish a baseline. This can help substantiate your demand and ensure it aligns with market standards.
- Legal Support: Consult with an experienced employment attorney to refine your calculations. They can help identify overlooked factors, validate your claims, and frame your demand within a legally sound context.
The importance of knowing your leverage and legal claims
Understanding your leverage and any potential legal claims is crucial to effective severance negotiations. Leverage might come from factors such as a strong performance record, knowledge of sensitive company information, or potential claims for unlawful termination, discrimination, or retaliation. Being aware of these factors can shift the dynamics of the negotiation, prompting the employer to offer more favorable terms to avoid legal exposure or reputational harm. Employees who are clear on their leverage can approach discussions with confidence, focusing on what they are entitled to while steering clear of overreaching demands that could jeopardize the process.
Mistake #3. Acting Like a Lawyer
When negotiating a severance agreement, some employees mistakenly believe that adopting a lawyer-like approach will strengthen their position. While this might seem like a way to demonstrate seriousness, it often backfires, leading to misunderstandings, strained negotiations, and weakened credibility. Here’s why: most people understand virtually nothing about the law, and understand even less about how a potential lawsuit will work out. On the other hand, most Employers have sufficient resources to retain a competent, knowledgeable employment lawyer. If you try to act like a lawyer, the Employer’s lawyer will immediately recognize that you have no idea what you’re talking about and will take you less seriously because they know you are bluffing.
Matt’s advice is this: retain a lawyer as early as possible in the severance negotiation. If you are unable to do so, just be yourself and do not try to use big words, confusing legal concepts, or threaten to file a lawsuit because no one will take it seriously.
Pitfalls of Using Legal Jargon or Acting Like a Lawyer
- Misunderstanding Legal Concepts
Legal terms and concepts are highly nuanced. Without proper training, employees often misuse or misinterpret these terms, leading to statements that are factually or legally incorrect. For example, casually accusing an employer of “breach of contract” or claiming “constructive dismissal” without fully understanding these terms can damage credibility. Employers and their legal teams will quickly recognize such errors, weakening the employee’s position. More importantly, the Employer will conclude that you do not have a valid argument (even if you do) because you are unable to express it in a manner that makes sense. - Creating a Combative Dynamic
Severance negotiations are already sensitive, and adopting a lawyer-like demeanor can escalate tensions unnecessarily. Employers may interpret this approach as adversarial, which can reduce their willingness to negotiate in good faith. Rather than fostering collaboration, this tactic often hardens the Employer’s stance, making it more difficult to achieve favorable outcomes. - Risking Unintended Admissions
Attempting to frame legal arguments without proper expertise can lead to unintended admissions. For example, casually acknowledging poor performance or other issues in an attempt to “reason” with the Employer may inadvertently strengthen their case against providing additional severance benefits.
Consulting with an experienced employment attorney is far more effective than attempting to handle severance negotiations on your own. Employment attorneys bring specialized expertise in employment law, ensuring that you fully understand the terms of the agreement and identify any vague or overly restrictive clauses that could harm your future career or financial stability. Additionally, a competent and experienced employment lawyer can provide strategic guidance, leveraging factors like your tenure, potential legal claims, or restrictive provisions to secure better terms while maintaining a professional and collaborative tone with the employer.
Mistake #4. Writing a Manifesto Declaring All the Reasons the Employee is Entitled to Severance
How long-winded justifications or rants can detract from effective negotiation
- Overwhelming the Employer
Employers are focused on resolving severance negotiations efficiently. A lengthy, emotional, or overly detailed document can overwhelm them, causing them to tune out key points or dismiss your concerns entirely. Instead of emphasizing your valid requests, a long-winded, highly detailed manifesto may come across as unorganized or overly emotional, reducing the impact of your arguments. - Diluting Your Strongest Points
Long-winded justifications often bury the most important elements of your case under a flood of less relevant details. This happens almost every time an employee attempts to make a written argument because most employees do not understand what facts and circumstances are important. Employers are less likely to act when they must sift through a long list of grievances to understand your core concerns. Focusing on concise, fact-based points ensures your strongest arguments are heard and considered. - Risk of Being Ignored or Misused
Manifestos are often set aside by Employers and not taken seriously in negotiations. Worse, they may be added to your personnel file, creating a written record that could reflect poorly on you or be used against you in future disputes. This documentation can also serve to support the employer’s narrative if conflicts escalate, making it harder to secure favorable terms.
By keeping your communications concise, professional, and focused, you increase the chances of productive negotiations while avoiding the pitfalls of long-winded manifestos. Matt’s advice is that if you decide to draft your own response to a proposed severance agreement without the assistance of an attorney, make it short: one or two pages, never longer.
Mistake #5. Recruiting Co-Workers to Make Similar Demands for Severance (“Dogpiling)
How group action can weaken individual claims and create legal complications
When multiple employees band together to make similar demands for severance, Employers often perceive this as a coordinated attack, especially if the same lawyer represents all the employees. This strategy, while seemingly advantageous for the group, can harm the individual who initiated the claim:
- Employer Pushback
Corporate Employers tend to respond aggressively when they see multiple claims being brought forward by the same attorney. They may assume the lawyer is exploiting the situation to pressure the company into a larger settlement. This perception often leads Employers to halt all negotiations, delaying resolutions for everyone involved and forcing a tougher defense strategy. - Spoiling the Original Claim
The individual who started the process may face unintended consequences when their claim becomes part of a broader effort. Employers may treat all claims as part of a collective action, disregarding the unique merits of the original case. This can dilute the individual’s position and make it harder to achieve a favorable outcome. In most circumstances, employees can actually negotiate a better deal on an individual basis rather than as part of a larger “class” or “collective” claim. - Escalation of Defense Tactics
Faced with multiple demands, Employers are more likely to escalate their legal defenses, bringing in corporate attorneys to scrutinize and counter each claim aggressively. This not only prolongs the process but also increases the chances that the Employer will dig in their heels, offering less favorable settlements or refusing to negotiate altogether.
In severance negotiations, focusing on your individual claim and avoiding group efforts is often the best way to ensure a productive resolution. By working closely with an experienced employment attorney to craft a tailored strategy, you can avoid the pitfalls of dogpiling and maximize your chances of securing a favorable outcome.
Mistake #6. Getting Legal Advice After the Negotiation, Not During the Negotiation
Why waiting too long to seek legal advice can hurt your case
Delaying legal advice until after the negotiation often results in missed opportunities and costly mistakes. Severance agreements are binding contracts, and once signed, your ability to challenge unfavorable terms is extremely limited.
Additionally, negotiating on your own can weaken your leverage. Employers are less likely to offer favorable terms to employees who lack legal representation, as they assume you are less informed about your rights. Early involvement of an attorney signals that you are serious about protecting your interests, which can shift the dynamic in your favor and result in better financial compensation or benefits.
By the time you consult an attorney after the negotiation, the Employer may resist reopening discussions, leaving you with less flexibility to address problematic clauses or secure better terms. Seeking legal advice during the negotiation ensures you approach the process strategically and protects you from signing an agreement that could have long-term negative consequences.
Severance Agreement Frequently Asked Questions:
What is a severance agreement, and why is it important?
A severance agreement is a legally binding contract between an employer and employee that outlines the terms of the employee’s departure, including compensation, benefits, in exchange for a waiver and release of liability for all known and unknown claims by the employer against the Employer.
Can I negotiate the terms of my severance agreement?
Yes, most severance agreements are negotiable. Employees can often negotiate for better financial compensation, extended benefits, or changes to restrictive clauses like non-compete agreements.
What are the most common mistakes employees make during severance negotiations?
Common mistakes include signing too quickly without legal review, making unrealistic demands, acting like a lawyer, and failing to seek legal advice during the negotiation process.
How can an employment attorney help with my severance agreement?
An experienced employment attorney can review the agreement, identify problematic clauses, negotiate better terms, and protect your legal rights throughout the process.
What should I avoid saying or doing during severance negotiations?
Avoid writing lengthy manifestos, recruiting co-workers to make similar demands, using legal jargon incorrectly, or negotiating without proper legal representation.
When is the best time to consult an attorney about a severance agreement?
It’s best to consult an attorney as soon as you receive the severance agreement. Early legal guidance ensures you approach negotiations strategically and avoid signing unfavorable terms.
Contact the Ruggles Law Firm at 916-758-8058 to Evaluate Your Potential Lawsuit
Contact the Ruggles Law Firm at 916-758-8058 to Evaluate Your Potential Lawsuit
Matt Ruggles has a thorough understanding of California employment laws and decades of practical experience litigating employment law claims in California state and federal courts. Using all of his knowledge and experience, Matt and his team can quickly evaluate your potential claim and give you realistic advice on what you can expect if you sue your former employer.
Contact the Ruggles Law Firm at 916-758-8058 for a free, no obligation consultation.
Blog posts are not legal advice and are for information purposes only. Contact the Ruggles Law Firm for consideration of your individual circumstances.
