It’s a familiar scenario by this point. An employee is asked to meet with HR. The employee does not know what to expect and is naturally a bit nervous about why he or she is meeting with HR. Once the employee enters the office or conference for the meeting, the HR person hands over a stack of papers to the employee to sign. “You’re being terminated,” the HR person says.
Maybe the company provides a reason for the termination. Maybe not. And maybe the employee is told that he or she must resign immediately by signing the agreement on the table. Or maybe the agreement provides for no severance, or maybe a few weeks are offered. Regardless, the employee at that moment has just been handed a contract and is being pressured, explicitly or implicitly, to sign immediately. And that contract has serious legal implications for the employee.
I review many severance agreements each month for newly terminated employees. Most of those people I meet with simply want to understand what they would be signing and what it all means. Many have never been fired before, and most have never seen a severance agreement. It’s all very new to them. So they seek out an attorney for advice.
In my previous post on the topic of severance agreements, I discussed the content and implications of the various terms contained in a standard severance agreement. In this post, I want to focus more on how an employee can respond to and negotiate severance agreements.
Option #1. Accept the severance agreement as written.
This option requires the employee to accept the offer of severance without trying to negotiate for anything more. Depending on the circumstances, this option might make the most sense. For example, after reviewing an employee’s work situation, I might very well determine that the employee’s termination was legal and the employee has no legal claims against the company. In that case, the employee has no leverage or bargaining power to use in negotiating for more severance, and simple acceptance of whatever is offered would be best. Otherwise, the employee would simply be going back to the employer to say, “Please, sir, I want some more.” Not the strongest argument for free money.
Option #2. Reject the offer.
In this scenario, the employee may decide that the company will not offer enough money in severance to justify releasing the employee’s legal claims against the company. Or the employee may have a desire to tell the world about the wrongful actions of the company as a means of holding the company accountable to the public for certain actions (or even perhaps as a form of emotional catharsis or release). The employee can explicitly reject the offer or simply ignore the offer and allow it to lapse.
Option #3. Negotiate severance.
The final option is to negotiate for more severance. Remember, a company is not giving away severance for free . The company is BUYING something specific; in this case, a release of the employee’s legal claims. In exchange for paying the employee some amount of severance, the company requires the employee to sign the severance agreement containing a release of legal claims. That means the employee has to give up any right to sue the company for any reason. Now, if the employee has NO legal claims, then the company is not purchasing much of value (save, perhaps, peace of mind when it comes to lawsuits from employees).
However, if the employee has viable legal claims, then the employee does have something of value to offer in exchange for that release of claims. The release, in other words, just became far more valuable.
For example, in reviewing the facts of an employee’s termination, I may come across facts that indicate that the employee was wrongfully misclassified under the Fair Labor Standards Act. That means the employee should have been getting paid overtime, but the company called him “exempt” or not entitled to overtime pay. So the employee worked for years under the assumption that he should not be getting overtime. Once I discover that the employee was misclassified under the FLSA, the employee has a legal claim for unpaid overtime pay. The employee would have every right to file a lawsuit immediately seeking payment of illegally withheld overtime pay and seek a trial by jury in state of federal court. That potential lawsuit just became leverage to negotiate for more severance. And if the company does not wish to negotiate, then a lawsuit they shall get.
As another example, the employee may suspect that the termination was based on a discriminatory reason, such as age, race, religion, national origin, sex, or disability. If the employee has specific facts to support unlawful discrimination, then those facts can be turned to bear upon the company in our negotiations. Obviously, the stronger the evidence of discrimination, the stronger the employee’s position will be in negotiating the severance agreement.
A great deal also depends on the value of the employee’s claim. An unpaid overtime claim for $500 would not strike too much fear into the heart of an employer, while a class action affecting dozens of employees might. The facts of each employee’s specific scenario will drive the negotiations. The company is simply analyzing and buying off risk–the risk of being sued . . . and the risk of losing that lawsuit. That risk provides the leverage for an employee (or the employee’s newly retained lawyer) to ensure that no money is being left on the table.
Ultimately, the important thing for an employee in South Carolina to remember (besides my email address) is that you should never sign a legal document without understanding what every word in it means. Speaking with an attorney will provide you, as the employee, with the knowledge and assistance you need to make a good decision. Don’t let an HR manager’s pressure tactics goad you into making an uninformed decision.