Thursday, February 26, 2015

Voluntary Severance Offers - How to Negotiate and What to Look for When a Company Offers Severance

NOTE:  This Article was initially posted in one piece. Realizing it was far too long, I have broken it into 2 parts.

This part discusses what I refer to as "Voluntary" severance offers.  Click Here to jump to the second part, which discusses what I refer to as "Mandatory" severance offers.

Understanding and Negotiating Severance - Key Things to Bear in Mind Concerning Your Rights When Offered Severance

In general, there are two types of severance packages: Those that are required under the law, a contract or a company policy, and those that are made voluntarily for any one of a number of reasons.

Is Your Severance a Product of Good Will or Legal Obligation?

When considering a severance package that has been offered to you, the first thing you need to do is
determine whether the offer was voluntary or mandatory.  Once you have that figured out, there are multitude of considerations that must be weighed in the course of deciding whether to accept, reject and/or attempt to negotiate the severance package offered to you.

This Post, while certainly not exhaustive, addresses the most common scenarios, approaches and considerations that I have learned about mandatory severance since I started practicing law in 1991.

Why it is Important to Understand the Employment "At-Will" Principle When Considering a Severance Offer

Most Americans are employed "at-will."  That means they have no right to any sort of "due process" in connection with any decision made by the company to terminate their employment.  If you are "at will," your severance offer is most likely voluntary.

VOLUNTARY SEVERANCE OFFERS - THE "AT-WILL" EMPLOYEE

I am an At-Will Employee Being Offered Severance Provided I Agree to Release the Company From Any Claims I May Have Against it for Discrimination, Unpaid Compensation, etc.

Voluntary severance offers made to at-will employees are very, very
 common.

Why, you ask?

Companies Want Finality -
Which a Release Secures
When a company wants to part ways with an employee, it usually wants to make sure that the relationship is severed once and for all.  The best way to achieve that objective is to have the employee sign a Release.  The best way to entice an employee to sign a Release is to offer severance.

Many employees are, understandably, suspicious when such a severance offer is made.  "Why," they ask, "would the company want me to sign a Release, unless it has done something illegal?"

Is it sometimes the case that employers offer at-will employees severance in order to get a Release because the employer believes it is at significant risk for being suing for wrongful discharge, or breach of obligation to pay compensation, overtime, etc.??  Yes, I am confident that it is.

Is that usually the case?  No, I am confident it is not.

Many companies make it their standard practice to offer severance to employees who have been with the company for more than a few years.  There are at least two good reasons for this that spring immediately to mind.

One, such severance offers often reflect the employer's desire to extend good will towards its employees, even those who the company feels are no longer suitable for continued employment.

Two, employers want to know that a former employee will not come back to haunt them in the future.

In this regard, severance offers attached to a Release simply reflect common human experience.  "Hell hath no fury like a woman scorned."

And, maybe, like a fired employee.

So, even though the company does not believe it did anything wrong by firing the employee, it understands that the former employee may not share its view, or may be driven by anger to find a lawyer to sue the company for a variety of reasons.  Hence, offering severance in exchange for the peace of mind engendered by an executed Release simply makes good business sense.

Should I Sue or Sign a Release in Order to Receive Severance?

Where severance negotiations are concerned, this is an area where a qualified attorney can make all of the difference.

That is so because while, in general, the offer of severance and Release signifies nothing nefarious, that is not always the case. Sometimes, rather nefarious doings are, indeed, afoot.

I have seen many situations where an employee's termination appeared to be unlawful.  However, my entire practice is centered upon employee rights, and it is a complex field indeed.  So, while there are many, many people who call lawyers because they are upset after having been fired, there exists only a small percentage of lawyers who actually represent employees on a full-time basis.  It is a very taxing area of practice, let me tell you.  Employee-side lawyers are often fighting large companies with unlimited resources and a cadre of high quality lawyers.

Knowing What is Illegal Discrimination is
Often Key to Deciding
Whether to Accept Offered Severance
The problem, though, is that many lawyers who receive calls from disgruntled individuals who have recently been fired give "free advice" over the phone that leads the client astray.  This leads to workers accepting severance offers when they should not have done so, and to workers rejecting severance offers that they should have accepted.

The fact of the matter is, illegal terminations exist in only a small percentage of situations.  But, where they do exist, an employee may be entitled to substantial compensation.  So, when I am asked whether a severance offer should be accepted or rejected, it is my duty to fully assess the facts, and to then explain how the law works under the facts presented.

Having been duly informed, it is then up to the client to decide whether to accept the offer as is, or to attempt renegotiation.  If renegotiation is appropriate, it is then up to me to do the best job I can via creation of legal leverage that, it is hoped, will cause the employer to consider my client's legal rights and position, with the result being a more generous severance offer.

Litmus Test for Employment Lawyers:  Would I Sue on Contingent Fee Basis if Severance Negotiations Fail to Achieve my Client's Goals?

Ultimately, it is the client's decision whether to accept or reject the company's final settlement offer.

In close cases, I provide one very useful tool to assist my client in evaluating his/her position.

Contingent Fee Agreements
High Risk Undertakings
That tool is my willingness to file suit on a contingent fee basis for whatever claim is being contemplated if severance negotiations fail to achieve a desired result.

I am a fairly aggressive lawyer who knows employment laws.  I like contingent fee cases when they work out well because I can make a fair amount of money.

However, when they do not work out well, contingent fee cases can be real back breakers.  Financial, emotional and psychological back breakers.

Most of the lawsuits I file on a contingent fee basis are filed in federal court.  Many federal judges do not really like employment cases because they are the most common type of civil cases filed in federal court, and are sometimes filed by lawyers who do not really focus their practice on employment laws, or federal litigation.  We all have reputations to maintain and, for an attorney, having a reputation as a lawyer who files bogus cases is about as bad as it gets.  Indeed, any lawyer carrying such a reputation into court stands the risk of having even good claims thrown out of court.

Think: "The Boy Who Cried Wolf."

You Don't Want Your Lawyer
to be "THAT" Boy

So, in addition to the financial and emotional risks undertaken by any contingent fee lawyer, I always bear in mind that my reputation is paramount; bad decisions by me not only affect the client on whose behalf the decision was made, but also future clients, who depend upon my reputation with the courts when hiring me for a case.

For me, at this point in my career, determining whether I would pursue a case on behalf of a client very often boils down to a simple question, to wit: "Would I take this case on a contingent fee basis?" This is because most of my clients cannot afford the tens of thousands of dollars (and sometimes far more) I would charge for my time on an hourly basis when prosecuting such a case.

My determination in this regard is very critical for a client, and must be discussed with he/she before any final determination is made as to whether to accept the company's "final offer."  That is so because if I won't take the case on contingent fee, it is likely that other similarly-experienced employment lawyers will view the matter in the same way.  Since the client cannot afford to pay a lawyer on an hourly basis to bring such a lawsuit, when I make a decision to reject taking the case on a contingent fee basis I often end up recommending that the client take even a severance offer that may be perceived as a little light, explaining: "This offer is better than anything you can expect to get in a lawsuit, since it is likely that the only way you will be able to bring a lawsuit is if you do so on your own."

Of course, the converse proposition is true as well.  If I am interested in pursuing the case on a contingent fee basis, the client has more and better options.

"Will you, sir, take this case on a contingent fee basis?"

The contingent fee question is so critical that, on balance, if you have an attorney assisting you in the
negotiation of severance, the most critical inquiry, at the end of the day, is this one: "If I reject this final offer, will you file suit for me on a contingent fee basis?"

If you have a qualified attorney, his/her answer to that question may be as important as any other consideration you weigh in the course of reaching your final determination.

How Does My Severance Pay Affect My Right to Unemployment Benefits in Pennsylvania?

I have done my best to lay this all out in a Post you can jump to by Clicking Here.

Negotiating Severance on Behalf of Pennsylvania Workers Since 1991
Philadelphia Area Employment Attorney Helping Employees With Severance Negotiations

John A. Gallagher is an employment lawyer who represents employees in Pennsylvania. 

John typically represents employees who need an employment lawyer in Philadelphia County, Chester County, Delaware County, Bucks County, Berks County, Lancaster County and Montgomery County.

Pennsylvania Employment Attorney Provides Free Telephone Consultations About Severance

If you are looking for an employment lawyer, and live in Malvern, Wayne, King of Prussia, Downingtown, Glenside, Doylestown, Radnor, Newtown Square, Exton, Philadelphia, West Chester, Skippack, Langhorne, Haverford, Nether Providence, Broomall, Drexel Hill, Reading or any of their surrounding towns, feel free to send me an e-mail or give me a call.  I am always glad to spend some time with people via a free telephone consultation.

Need an Employment Labor Lawyer Near Philadelphia to Help With Severance Strategy?

Click Here if you have questions about any aspect of employment law, from wrongful termination, to wage and overtime claims, to discrimination and retaliation laws, to Family and Medical Leave

Click Here if you have questions about any aspect of Pennsylvania Unemployment Law, from willful misconduct, to voluntary quit, to Referee Hearings, to severance issues

Click Here to e-mail John directly.

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