Don't Let Your Severance Package Sever You From Your Money

by Katharina Martinka, Attorney at Law

Many executives are finding themselves stunned, exasperated and confused when they hear and try to mentally process the words, “You’re fired”, “You’re being downsized” or “We’re going in a different direction and you’re not going to be part of it”.

In today’s tough economy, companies are employing these phrases more frequently as they strive to remain competitive. Unfortunately for some executives, employers may use these phrases to justify getting rid of otherwise acceptably performing employees who didn’t play politics well, or who spoke up for themselves in the face of a hostile work environment, discrimination or harassment.

Companies are rightly concerned about backlash from terminated employees, so they often will offer a severance package in exchange for the employee’s release of any claims he or she may have against the employer. It is important to note that there must be adequate legal “consideration” for any employer to obtain such a release. Depending upon the age of the employee and whether the termination is part of a broader layoff, a laid-off employee may have only a brief time to consider the severance package offered, sometimes as little as seven days.  This is a critical time period when the employee, still reeling from the termination, may not be in the best position to consider his or her options and make the best decisions.

Before agreeing to a severance package, it is highly advisable for employees to consult with an experienced employment attorney. The attorney will carefully review the details of the termination notice and severance package to ensure that the agreement is not over-reaching on the employer’s part. Newly terminated employees should be especially mindful of the following five major areas of concern:

• Severance details – Are all components of the employee’s compensation to be included and addressed correctly in the company’s offer (e.g. salary, bonus, equity participation, tuition reimbursement, continuation of health benefits, unused sick and vacation days, retirement, etc.)?

• Continuing obligations – How will contact with current company personnel, use of information obtained during employment and statements about the employee’s work with the company be handled?

• Outplacement – What type of assistance is the company offering to help the employee find another position?

• Employment Inquiries – How will the company handle inquiries from prospective employers regarding references and disclosure of employment information?

• Dispute Resolution – If a disagreement arises after the severance agreement is signed, will it be resolved in court, mediation and/or arbitration, and more importantly, who will pay for it, and in what city will it occur?

Employees considering a company’s severance offer should seek guidance from an experienced employment attorney before signing any agreement. The attorney will not only be able to provide an objective and independent assessment, but he or she will also identify any issues that may warrant the negotiation of more favorable terms. Moreover, attorneys are in a better position to negotiate more effectively on behalf of the terminated employee so that the employee may ultimately achieve a more favorable severance package.

© 2017

About the Author:

Katharina Martinka, Attorney at Law

I have 25 years of legal and operational experience as a business and turnaround consultant, chief legal counsel and secretary to Boards of Directors of both publicly and privately held companies. I have a unique talent for taking the pain out of SOX and delivering sound solutions to reduce G&A costs and streamline business processes to dramatically improve a company's bottom line.

(415) 857-4843 Northern CA area telephone

(949) 400-9505 Southern CA area telephone

(928) 707-0014 Arizona telephone

kmartinka@martinkalaw.com

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