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The law doesn't guarantee you a severance package

If your position requires an employment contract, you may want to consider including a severance package in it. Most employment contracts include a termination date or circumstances under which the contract terminates. If your employer decides not to renew the contract or exercises an option to terminate it during its effective period, you don't want to find yourself empty handed.

The best time to negotiate a severance package is when you negotiate the remainder of your employment contract. Waiting until the termination of your employment may not be in your best interests since the Fair Labor Standards Act does not require your employer to provide you anything upon the termination of your employment other than what you have already earned at that time.

Does the company dictate the elements of a severance package?

Before you negotiate a severance package, you may want to determine whether your employer has a policy regarding it. If your employer does, it may include some or all of the following common elements:

  • Which employees qualify for a severance package
  • Conditions under which the company will and will not offer one
  • The manner in which the company calculates the severance amount -- including pay, vacation and sick time, and more
  • The method of payment -- e.g. periodic payments or a lump sum
  • The purpose of offering a severance package
  • The documents the company wants in exchange, such as a hold harmless agreement or release of liability

The company could also stipulate that it can change the policy as needed. The particulars of the policy could provide a good starting point for negotiations. Moreover, if you want to include something else, such as health insurance or stock options, you may want to mention it now. It may also benefit you to put a provision in your agreement stating that it remains enforceable even if the company changes its policy.

When it comes to employment contracts, you need to make sure that your interests remain protected. More than likely, your employer will also want certain assurances in exchange for a generous severance package, so you could end up providing them as long as it doesn't put you in a precarious position. For instance, you wouldn't want to agree to an extraordinarily restrictive non-compete agreement in exchange. Understand all of your options and the legalities behind them before signing on the dotted line.

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