As the country continues to slog through a tough economy, there are still companies choosing to downsize and many of those companies offer severance packages as a matter of policy.
When an employee is let go and the company offers a severance package, there are a few things to remember about the process that could have an effect on that employee’s ability to move on to the next job.
Companies are not required to offer severance packages. About 60 percent of businesses in the United States have a formal severance plan policy.
Those policies are written to provide a soft landing for the exiting employee and legal protection for the company. In many instances, a severance package is the easiest way for a company to let people go quickly and quietly. Many companies require exiting employees to sign legal paperwork promising they will not sue the company for discrimination.
Attorneys suggest having a consultation before signing severance package paperwork. If there are any reasons an exiting employee may have to claim a discrimination suit against the company, the opportunity is lost once the paperwork is signed.
Company severance policies will outline who is eligible – salaried employees, hourly employees, contract workers, and more. The policy also likely explains the circumstances under which a severance is offered – involuntary reductions in staff – and what needs to happen for a severance to be withheld such as termination for cause.
The company policy likely will cover how the severance will be calculated – often a factor of length of service. And the company will have rules about what type of legal paperwork the exiting employee will be required to sign.
Severance package legal paperwork may also include non-compete clauses that could limit an employee’s ability to seek out a similar job in a similar industry.
Most corporate severance packages include some negotiable elements and exiting employees can sometimes get a better deal in the right circumstances. Compensation elements that can be negotiable include pay, unused paid time off and insurance.
All companies’ severance packages differ depending on the type of employee. For some employees, the offer will be two weeks salary. For higher-level employees it could be six months or a year’s salary. Many companies calculate an offer based on the length of service and level of employee.
Paid time off can be negotiable in some cases. If an employee has unused PTO and/or sick days, then a company may be willing to factor that into an offer. Occasionally, state law can require companies to pay for unused PTO.
Lastly, companies sometimes will require an exiting employee to waive the right to collect unemployment compensation benefits. There are many details in a severance package that should be carefully looked at it by an experienced employment attorney before signing.