What Is a Reasonable Severance Package?

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If you have recently lost your job, or if losing your job seems to be on the horizon you may be feeling any number of emotions – stress, confusion, even panic. On the other side of the coin, if you are an employer faced with making layoffs for one reason or another, you may have any number of questions about the process – about what is fair, what is typical, and about any legal obligations you might have.

At Smithey Law Group LLC, we understand these feelings and these questions well, because we have represented countless clients, just like you, who have gone through the same thing. Labor and employment law is our passion, and we are honored to have a practice that is focused on the opportunity to help clients work through the myriad of issues they confront during the course of their employment – and after.

One question we commonly receive regarding job loss concerns severance packages: what is reasonable, and what is not? This is an excellent question and worth consideration – whether  you are the employer who is making the layoffs, or the employee faced with losing your job.  Often, these issues are well worth considering before you even accept a job to begin with. Understanding what constitutes a reasonable severance package is an important consideration, and one that is certainly worth taking the time to think through.

What to Look for in a Severance Package

As you begin to consider what might constitute a reasonable severance package, it is important, first, to remember the distinction between your actual pay and severance. Typically, the “last paycheck” will cover all of the time that actually worked until the termination date, as well as a payout for accrued vacation time, benefit elections, and any statutory deductions. Depending upon the employer’s particular policies, it may also include payout for accrued sick leave or a bonus payout. It’s important to realize, however, that this pay is for time already invested and accrued as an employee, and that it is separate and distinct from severance pay.

Severance packages, by contrast, consist of the pay and benefits that an employer elects to offer beyond the last payment for time already worked. Often, employers will use total years of service to a company as a sort of benchmark for determining how severance pay will be calculated. Any reasonable severance agreement should provide the methodology used to calculate severance generally, as well as anything that might be specific to you personally.

A reasonable severance package might include:

  • Severance Pay: This is the actual money that an employee might receive as a result of the severance. Insofar as the amount of pay is concerned, the truth of the matter is that different companies offer different amounts, and there is no predetermined formula. In fact, some companies offer no pay at all, as severance is not legally required. Often, those companies that do offer severance will use a formula to calculate the amount based upon an employee’s salary and how long he or she has worked there. For example, if an employee has worked at a company for four years, he or she might be offered eight weeks of salary as severance pay. Again, however, while this formula is typical, some companies will offer more pay and some less.
  • NonCompete Clauses: Depending upon the particular industry, employees may be required to sign a “non-compete” clause as a part of a severance agreement. While the details will obviously vary depending upon circumstances, generally these clauses require the employee to wait for a predetermined period of time before applying for work with the company’s competitors. Having an attorney review any proposed non-compete clause to be certain that it is legally sound and reasonable is always advised.
  • Extension of Benefits: In some cases, companies may offer extension of health, life, or disability insurance coverage for a predetermined amount of time after an employee is laid off. While COBRA allows for the continuation of the coverage the employee had through the employer for up to 18 months after termination, keeping up with those payments can be costly. Having an employer agree to continue making those payments for a set amount of time can be helpful and beneficial in reducing stress and expense. While this is not always part of a severance package, it can be negotiated and is certainly worth serious consideration.

It is also important to realize that, in exchange for receiving severance pay, employees will almost always be required to sign what is commonly known as a “general release.” A general release is a legal document that releases the company from any future legal claims in exchange for the severance pay that the employee receives. Certainly, if either the employee or the employer has any questions or concerns over the language or content of such a release, it is always a wise decision to consult with an attorney for advice as to its reasonableness from a legal perspective.

When considering whether or not a particular severance package is “reasonable,” it is also necessary to keep in mind that the term “reasonable” is a subjective one, to a large extent. What might seem reasonable and acceptable to one employee  as far as severance pay may not seem desirable and reasonable to someone else. It is also important to remember that consulting with an attorney as to the terms and provisions of a package that is offered is always a smart decision.

Visit Smithey Law Group, LLC for Your Labor and Employment Law Needs

At Smithey Law Group, LLC, we have more than 45 years of combined experience practicing in a wide variety of employment and labor law matters. We are passionate about providing the highest quality representation to our clients, and we pride ourselves in using our extensive legal knowledge and experience to work toward the very best outcomes for our clients. Perhaps you are an employer faced with making layoffs and thinking through the various issues related to severance.  On the other hand, you may be  an employee who has questions regarding your particular severance package.  Whatever the labor or employment law matters for which you need representation, we would welcome the opportunity to speak with you and to learn how we might be able to help. Call us today.

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Joyce Smithey, a seasoned employment and labor law attorney, has over 22 years of experience representing both employers and employees in Maryland and D.C. Her practice, rooted in a deep understanding of employment law, spans administrative hearings to federal litigation. Joyce's approach is comprehensive, focusing on protecting client interests while ensuring legal compliance. A Harvard graduate, her career began in Fortune 500 companies, transitioning to law after a degree from Boston University School of Law. Joyce's expertise is recognized by numerous awards, including Maryland’s Top 100 Women. At Smithey Law Group LLC, which she founded in 2018, Joyce continues to champion employment rights, drawing on her rich background in law and business.

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