If you’ve been terminated or laid off and your employer offers you a severance package, it’s important to understand why they’re offering it. Unless you have a pre-negotiated employment contract (this is very rare), the primary reason your employer is paying you severance is to secure your agreement to waive any legal claims you may have against the company.
Initial severance offers are rarely as generous as they could be. Employers typically start with the lowest amount they believe an employee might accept. This is where a severance pay demand amount comes in—a counteroffer that seeks fair compensation in exchange for your signature, which almost always waives your right to pursue legal claims against your employer.
Making an effective counteroffer, however, requires strategy. Simply guessing or demanding an overly inflated amount in hopes of “leaving room to negotiate” will likely backfire, potentially derailing the entire process. A well-reasoned and strategic counteroffer is key to maximizing your severance payout.
An effective severance demand is calculated strategically, using a set of key metrics as part of a broader negotiation strategy. Many terminated employees overlook this crucial step because, lacking experience in severance negotiations, they often misunderstand what a fair offer should include.
Matt Ruggles has over 30 years of employment litigation experience and a track record of successfully negotiating severance agreements for California employees. In this blog, Matts breaks down the essential factors used to determine a fair and effective severance pay demand—ensuring you make a strong case without jeopardizing your chances of reaching a favorable outcome.
The Justification for Making a Severance Pay Demand
One of the most important things to understand about severance pay in California is that it’s not guaranteed. Unless you have an employment contract that specifically entitles you to severance, your employer is not legally required to offer it.
That’s why, if your employer has made you a severance offer, it’s significant. The employer’s offer is clear evidence that the employer sees some value in “buying their peace” — meaning they are willing to pay something to reduce the risk of potential litigation.
Despite this, severance amounts can vary dramatically. On one end of the spectrum, you may receive a generous offer — one that provides meaningful financial support during your transition and may not warrant further negotiation. On the other hand, some severance offers are unfairly low, barely covering a few weeks of pay or failing to account for your years of service, performance, or contributions to the company. Worse still, these low offers often fail to reflect the potential value of a legitimate wrongful termination claim, which could entitle you to significantly more.
In the case of a shortfall offer, an experienced employment lawyer can often make a strong argument for a better outcome by highlighting the factors that justify a higher demand.
What Happens if You Try to Negotiate Severance Pay?
If you decide to negotiate for a higher severance pay amount, there are generally three possible outcomes:
- You effectively negotiate more compensation. This is the ideal outcome and is often achievable with a well-reasoned demand supported by the right metrics.
- Your employer refuses to negotiate. In this scenario, you make no gain but retain the original severance offer. While disappointing, this outcome is common and doesn’t put you in a worse position.
- Your employer withdraws the offer. While this is rare, it’s possible—especially if your approach is overly aggressive, disrespectful, or includes unfounded legal threats. However, most employers are unlikely to rescind their offer entirely because their goal is to “buy their peace”—that is, to secure your signature on a release of claims that waives your right to sue.
Why the Amount of Your Severance Pay Demand Matters
While your overall negotiation strategy will determine the outcome, calculating the right demand amount is a critical part of securing the best possible result.
Ultimately, the total dollar amount of your severance demand will always be the most important factor driving your former employer’s decision. Demanding too little leaves money on the table, while demanding too much can cause your employer to disengage or refuse to negotiate. The key is finding the right balance—a number that’s reasonable yet strong enough to improve your final outcome.
By approaching your severance negotiation with a calculated, well-supported demand amount, you greatly improve your chances of maximizing your severance without jeopardizing the offer on the table.
Metrics to Calculate an Effective Severance Pay Demand
Understanding which factors carry the most weight can significantly improve your chances of maximizing your severance package. Below are the most important considerations, ranked in order of their influence on your severance pay demand.
Metric #1: Potential Wrongful Termination Claims
What It Is: Evidence that your termination may have violated employment laws—such as wrongful termination, discrimination, harassment, or retaliation—can be a powerful bargaining tool in severance negotiations.
Reason to Use This to Negotiate: When your employer faces potential legal exposure, they will typically assess the financial risk of your claims, including potential damages, legal fees, and the cost of defending the case. They may also factor in the possible reputational harm or negative publicity that could arise from the situation. Weighing these risks, employers are often more motivated to offer a stronger severance package to secure a “release of claims” and avoid prolonged disputes. The presence of credible legal claims can often justify a substantially higher severance demand.
Avoid These Common Mistakes:
- Overestimating the Value of Fraud or Illegality: Your knowledge of fraud or illegal wrongdoings at work does not directly increase the value of your severance in proportion to the severity of the misconduct. The amount of severance offered is influenced by the legal exposure of the employment claim you assert, not by the size or scope of the company’s fraud or illegality itself.
- Attempting to Sell Knowledge of Impropriety: You cannot demand severance or any other payment in exchange for remaining silent about or disclosing your employer’s misconduct. This is considered extortion and is illegal. Any concerns about workplace fraud or wrongdoing should be handled through appropriate legal channels.
- Overreaching with Your Severance Demand: If you have a legitimate employment claim that you are using to leverage an increased severance, understand that demanding an amount far beyond what it would cost the company to defend and defeat your claim may backfire. Employers with the resources to litigate may revoke their severance offer and take their chances in court if they believe your demand is unreasonable. Aim for a demand that makes the company feel they are better off avoiding litigation rather than risking it.
- Notifying Colleagues of Your Potential Claim: If you have a claim against your employer, you may be tempted to contact your colleagues in hopes that additional pressure will improve your negotiating position — it won’t. Encouraging other employees to pile on their claims may make the company feel cornered, prompting them to retrench and take a hardline stance rather than settle. Focus on strengthening your own case rather than trying to rally a group effort.
Metric #2: Employment Tenure (Years of Service)
What It Is: Tenure refers to the length of time you’ve worked for your employer.
Why It Matters: Longer tenure typically leads to higher severance pay, as it reflects your loyalty, dedication, and the deeper impact of losing a long-term employee. Employers may also feel a stronger moral obligation to provide more generous severance to long-serving employees. Additionally, employees with a long tenure often possess a significant amount of sensitive or proprietary information about the company’s operations, clients, or strategies. This knowledge can increase the employer’s incentive to offer a stronger severance package in exchange for confidentiality and non-compete agreements.
Example Scenario: An employee with 15 years of service may reasonably expect a stronger severance offer than someone with only two years at the company, particularly if they were privy to key company strategies or confidential information.
Metric #3: Base Annual Compensation
What It Is: Your base salary is the foundation for any severance calculation.
Why It Matters: Higher-paid employees often receive larger severance packages simply because their regular pay is higher. Severance offers are commonly calculated using formulas based on weeks or months of pay, making your base salary a significant factor.
Example Scenario: If your base salary is $100,000 per year, a typical severance offer calculated at two weeks of pay per year of service will result in a larger total amount than someone earning $60,000 annually.
Metric #4: Odds of Subsequent Employment
What It Is: This factor evaluates how difficult it may be for you to find a new job based on your industry, role, skill set, or the current job market.
Why It Matters: If finding comparable employment is likely to take significant time, that may justify a higher severance demand to account for your extended period of unemployment.
Practical Considerations: An employment attorney can help assess your future job prospects and use that information to support your severance demand.
Example Scenario: An employee in a niche industry with few available roles may have a stronger case for extended severance pay than someone in a rapidly growing field.
Metric #5: Partially Earned Bonus (or Incentive Pay)
What It Is: This includes bonuses, commissions, or incentive pay that you earned (at least partially) before being let go.
Why It Matters: If you were on track to receive a bonus before termination, you may be entitled to that money—or you may be able to include it in your severance negotiation.
Example Scenario: If you were terminated in November and were eligible for a December bonus based on prior performance, your severance demand may include the unpaid bonus as part of your overall compensation request.
Metric #6: COBRA Benefits
What It Is: COBRA allows you to continue your employer-provided health insurance after termination, but the cost can be substantial.
Why It Matters: Including COBRA coverage as part of your severance demand can provide valuable financial relief while you transition to new employment.
Legal and Practical Implications: An experienced employment lawyer can advocate for extended COBRA coverage or employer-paid premiums as part of your severance package—especially if your health coverage is crucial to you or your family.
FREQUENTLY ASKED QUESTIONS ABOUT SEVERANCE PAY DEMAND AMOUNT
What is the most important factor in negotiating a higher severance pay demand?
The most influential factor is evidence of legal liability. If your termination involved potential wrongful termination, discrimination, retaliation, or other legal claims, this can significantly strengthen your negotiating position. Employers may offer more to avoid costly legal disputes and to secure a release of claims.
Should I ask for an extremely high severance amount to “leave room to negotiate”?
No. Asking for an unrealistic or inflated amount can backfire. Employers may see an unreasonable demand as a sign that you are acting in bad faith and decide to disengage altogether. A calculated, well-supported demand—based on key metrics like tenure, base salary, and potential legal claims—is far more effective.
Can my employer withdraw their severance offer if I try to negotiate?
While this is rare, it’s possible—especially if you make aggressive demands or threaten baseless legal action. However, most employers won’t rescind their offer because their goal is to secure your waiver of legal claims. A strategic and professional approach greatly reduces the risk of losing the offer.
How can I use my base salary to calculate an effective severance demand?
Your base salary is the foundation for most severance calculations. Employers often calculate severance using formulas tied to your pay rate—such as one or two weeks of pay per year of service. Knowing your base salary ensures your demand is realistic yet appropriately ambitious.
How do future job prospects affect my severance demand?
If finding comparable work is likely to take time—whether due to your industry, age, or the job market—this can justify a higher severance demand. An employment attorney can highlight these challenges in your negotiation, strengthening your case for additional compensation.
Should I ask for COBRA coverage as part of my severance demand?
Yes. COBRA benefits can be a valuable addition to your severance package, particularly if you expect a gap in health coverage while seeking new employment. Employers may be willing to cover COBRA costs for a limited time as part of your negotiation strategy. An experienced attorney can effectively advocate for this benefit during severance negotiations.
Conclusion
Negotiating severance pay is not about guessing or hoping your employer will agree to a high number. It’s a strategic process that requires understanding the key metrics that determine what’s fair and reasonable.
By carefully evaluating factors such as potential legal claims, your tenure, base compensation, and job prospects, you can calculate a demand that strengthens your negotiating position without risking the offer on the table. While it’s true that employers aim to pay as little as possible, they also want to secure your waiver of legal claims—and that gives you leverage when backed by a well-calculated demand.
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.
