Getting laid off is probably one of the toughest things to happen to you in your career. Whether your employment ended because of company closure or because of redundancy issues, there can be something good that can come out it – severance packages. Although the idea of a severance seems dark and gloomy, it can still work out to be the best solution not just for your employer, but for you, the affected employee as well.
In this episode of Walking Papers, attorney Josh Van Kampen of Van Kampen Law dives deep into severance packages. He discusses the usual inclusions and the different laws that cover it, such as the Employment Retirement Income Security Act (ERISA). 02:19
Attorney Van Kampen also goes into detail about the different problems that you can encounter in a severance offer, including the cut-off period 08:08 and the non-disparagement agreement 09:28. He also gives information on what certain provisions can be beneficial to you as the employee and what you can negotiate to get a better deal. 12:05
It’s important that once you are handed a severance notice, that you contact an employment lawyer 20:09 so they can go over the offer being given to you. You should also seek the services of someone who’s going to gather all data that’s needed, including cooperating with the company attorney too. 21:15 This is to ensure that you’re getting the most value out of an unfortunate situation.
The Walking Papers is a bi-weekly podcast by Van Kampen Law, a plaintiff-side employment law firm based out of Charlotte, NC, This podcast aims to give listeners, who are on the wrong side of some sort of situation at work, practical advice on how to turn the tables on their employers. This podcast is just an educational resource. It does not constitute legal advice and is no substitute for consulting an employment attorney about your unique situation before making legal decisions. Visit our website for more online resources and videos at NCemploymentattorneys.com, or better yet, call (704) 247-3245 for a free initial intake interview so Van Kampen Law can evaluate your case.
For more information on how Van Kampen Law can help you, call 704-247-3245 or contact the us online by filling out our confidential online intake form.
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Intro: 00:01 Human resources, employee relations, the legal department are aligned against you. Your employer has trained for this day, the day you’ve become an expendable number at work. There are robust laws that may protect you, but, unlike the company, you’ve not been drilled on how to wield them. You’re playing catch-up. There are pitfalls to avoid and countermeasures to deploy that may save your job or put you in the best position to negotiate a favorable settlement. Minutes matter. Your words and actions matter even more.
Intro: 00:33 The Walking Papers Podcast offers the first foray into learning how to turn the tables when you’ve been targeted at work. Knowledge is power. Let’s get started.
Robert Ingalls: 00:45 I’m Robert Ingalls and I am back today with attorney Josh Van Kampen to discuss severance packages. Welcome Josh.
Josh Van Kampen: 00:53 Hi. How’s it going?
Robert Ingalls: 00:54 I am lovely. Thank you. Josh, what is a severance package?
Josh Van Kampen: 01:00 It’s kind of a dark term, isn’t it? Severance. Well, it means you’ve been severed from your job. Severance packages aren’t all bad if they’re good packages. Generally severance packages include monetary payments, usually some period of weeks or months of pay. Then also continuation of health, medical, dental, the fringe benefits that you would normally receive if you were still employed.
Josh Van Kampen: 01:31 Then severance packages come with a huge string attached, which is your waiver of your legal claims in receipt for that money. Then the severance packages are drafted by evil and management-side employment attorneys who have slanted them so heavily toward their employer’s interest. They can be pretty distasteful documents, pride swallowing documents sometimes. We’re going to, in this podcast, be talking about things that we want to negotiate out of severance agreements, things we want to negotiate into severance agreements, and then obviously the elephant in the room is to talk about increasing severance offers and how to go about enhancing your severance package.
Robert Ingalls: 02:16 Now, are there any particular laws that govern severance packages?
Josh Van Kampen: 02:19 Yes. There’s a law called ERISA, and only masochistic attorneys want to specialize in ERISA, because it’s very obscure and has a lot of obscure tax implications attached to it. Most publicly traded companies or sophisticated privately held companies often have what are called severance plans. As employees, you’re actually entitled to request a copy of your summary plan description, or SPD for short.
Josh Van Kampen: 02:50 This document will define what the standard severance package is. Oftentimes there are different gradations of severance pay depending on what category you fall in within a summary plan description. For example, C suite executives, corporate officers often have their own severance plan. Those are the richest severance plans that you’re going to see. Then different gradations of professional employees may have a different formula that they’re paid under. Then finally there are ERISA plans oftentimes for hourly employees.
Josh Van Kampen: 03:27 Listeners need to understand that these are the standard plans, and you actually are entitled to receive whatever the standard package is, if you fall within whatever criteria is set forth in the summary plan description.
Robert Ingalls: 03:41 Now, if they come to me with this standard package, is there any wiggle room there? Is that the end of it, or is there negotiation room?
Josh Van Kampen: 03:51 Don’t buy it when your employer says, “We can’t possibly deviate from our summary plan description.” I’m telling you that employers do that all the time. The reason why they do that is because the value of the waiver and release that the employer is requiring, remember the string attached that we talked about earlier, depending on what your legal claims are, it may be worth more to that employer to get you to sign that waiver and release than if you were just a run of the mill person who was displaced without any legal claims.
Robert Ingalls: 04:26 Now, if this is a smaller company, how does that process differ?
Josh Van Kampen: 04:30 Most smaller companies don’t have formal severance plans, and so they would take more of an ad hoc approach. Sometimes that’s helpful, because it actually gets out from under this argument where they’re saying, “Well, we can’t deviate from our past practice,” because there isn’t any governing document. The other thing is these small businesses, even though there’s no past precedent they need to follow under their plan, they still can’t discriminate against you.
Josh Van Kampen: 04:59 Let’s say that the white executives who were displaced from a small business always got six months severance packages, but then an African American executive gets displaced and they offer him three months. Even though there’s no severance plan, per se, under this ERISA statute like we talked about, that small or medium size business still can’t discriminate against somebody because of their race or their sex or their religion, or that sort of thing, in the amount that they pay in severance.
Robert Ingalls: 05:28 Got you. Now, let’s talk time frames to sign severance agreements. Why do some severance plans allow for, say, 21 days to consider, and then others may have shorter time frames?
Josh Van Kampen: 05:40 I know everybody is always wondering, “Where does this 21 day period come from?” It comes from a statute called the Older Worker Benefit Protection Act. I’m a little offended by this statute, because it assumes that people over 40 need more time.
Robert Ingalls: 05:56 Got to really think about that.
Josh Van Kampen: 05:57 They really need to think about it, because they’re infirm. The law requires that if you’re over 40 that you be given 21 days, calendar days to consider a severance offer. Now, that 21 days can actually expand to 45 days if you’ve been displaced as part of a group layoff. In which case you get a full 45 calendar days. Then the other requirement that’s nice from the Older Worker Benefit Protection Act is if you’re displaced as a group layoff, you’re entitled to know the ages and number of people in your job classifications so that you can compare who was retained and who was displaced. That’s a really nice feature.
Josh Van Kampen: 06:43 Then finally that statute also allows you to revoke. Let’s say you signed within your 21 days. You realized you were foolish for doing so. You can actually revoke if you provide a written notification that you want to revoke within five business days of your signing.
Robert Ingalls: 07:02 Now, what happens if the employer doesn’t give you the required time?
Josh Van Kampen: 07:05 You get to keep your money, the money that they paid you and you can still sue them for age discrimination.
Robert Ingalls: 07:12 That sounds like the win-win.
Josh Van Kampen: 07:13 It’s a win-win. In a way you feel a little bad. You’re like, “Well, jeez. I did accept the severance. I signed a piece of paper that I wouldn’t sue.” On a technicality, that waiver as to the age discrimination wasn’t enforceable, you can then sue. Now, the employer if you win in trial, the employer’s going to take as a credit the severance that was paid to you in the first place, but you can still bring suit. The bad news is the waiver that you signed as to other kinds of discrimination like race discrimination or sex discrimination, that waiver that you signed is still effective for those other claims, but your age discrimination claim survives.
Robert Ingalls: 07:56 Got you. Now, I know that frequently severance agreements tend to be uniform, but do you ever come across provisions in any of the severance agreements you’ve seen that give you pause or would make you say, “No. We’re definitely not signing this”?
Josh Van Kampen: 08:08 Yeah. We encounter a lot of these provisions in almost every severance agreement. Really, can you blame the employer? They’re thinking, “Well, if we can get away with these draconian measures or what would normally be poison pills in agreements, let’s get them.” They try. A couple that we want to be really wary of, the first of which is a cutoff for severance. In a normal severance agreement, you get your severance regardless of whether you get a new job within the six month period they were paying you, for example.
Josh Van Kampen: 08:43 Increasingly I’m seeing employers insert provisions that if you get a job in a shorter increment of time, say three months within that six month period, that it cuts off your severance. That’s not fair, because you obviously would have worked for that company for a long time to have earned that severance. You shouldn’t be penalized by receiving less severance because you did a good job and got a new job sooner. We routinely will go to the mat on a provision like that and have our clients refuse to sign it. That one is not standard, and so the overwhelming majority of time the employer will back off of that sort of provision.
Robert Ingalls: 09:26 Got you.
Josh Van Kampen: 09:28 Another one that rubs me the wrong way, what I call a draconian enforcement provision. You’re likely to have a non-disparagement provision in your severance agreement. You can’t say anything bad about the company. Let’s say you had a few too many drinks one night at the Wooden Robot Brewery, my favorite brewery in Charlotte. You ran your mouth and you said something bad about your boss or the company to your buddy, and it was overheard by a secretary from the company.
Josh Van Kampen: 09:57 The way that provisions are often written in these severance agreements, they could say that you breached your non-disparagement provision, and the contract may allow them to cut off your severance benefits if you disparage the company, or to sue you to recover all the money that they paid you because you breached the non-disparagement provision.
Robert Ingalls: 10:17 Now, at that point that’s the employer playing judge and jury. Let’s say this happens, that situation occurs and they cut off your severance. At that point do you have the ability to file suit over this?
Josh Van Kampen: 10:32 That’s what I get so bothered about this. It’s like the employer should not be able to determine whether or not you’ve breached and then turn off the spigot. The employer should have to go down to the courthouse and convince a judge that you breached, to turn off the spigot. Because obviously the employer has a financial incentive to turn it off. We’ll routinely push back on such a provision and say, “Well, employer, sure, you can turn off the spigot, but you got to prove there was a breach, and you got to go down to the courthouse to do it.”
Robert Ingalls: 11:04 Are there any other provisions you see that are heavily one-sided in favor of the employer?
Josh Van Kampen: 11:10 I call it robbing Peter to pay Paul. Let’s say that during the employee’s employment they never signed a non-compete agreement. All of a sudden you’re laid off. They’re going to pay you six months pay in severance, but they want you to sign a one-year non-compete. First of all, they’re not paying you your severance, so why would you agree to a year non-compete when they’re only paying you for six months? Furthermore, why would you want to on board that kind of restriction or obligation when you didn’t have it while you were a worker for the company?
Josh Van Kampen: 11:42 We routinely just mark out any new non-compete obligation, unless the company wants to pay your severance, then we say, “You got a deal.” It’s usually a pretty good bargain for a client at that point.
Robert Ingalls: 11:57 We covered provisions that the employer may try to add in there. Are there provisions that you like adding to these agreements for your clients?
Josh Van Kampen: 12:05 Yeah. One thing that makes me nervous for folks is let’s say you were lucky enough to have a six-month or eight-month severance package, and it’s paid out over eight months. That is exposure that you have that the company could be sold, could go out of business, could manufacture some BS argument that you breached your obligations and turn off the spigot, and then now you’re having to go to court to try to turn the spigot back on. The safest way to handle that is to get a lump sum payment upfront.
Josh Van Kampen: 12:35 Now, sure, you might be paying more taxes because it’s a bigger paycheck up front, but come tax time, so you get a refund because you overpaid. But most importantly you don’t have the risk that those payments could stop. That’s one example. The other thing that’s ridiculous, too, is they want to muzzle you. The employer wants to muzzle you and say, “You can’t disparage and say anything negative about your managers or the company,” but they can say whatever the heck they want to about you.
Josh Van Kampen: 13:04 We’re always saying, “Look, we can live with a non-disparagement provision but it’s got to be mutual.” Now, most companies are not going to agree to bind a corporation because they can’t police every single person. It reasonable for the listener to go to the human resources department and say, “Well, at least let me identify three or four people.” Because you can certainly control what three or four people are going to say during their employment. Oftentimes, if you limit it to a finite number of folks, then the employer will agree to it.
Josh Van Kampen: 13:39 Their fallback, most employers try to get it away with saying, “Well, we’ll agree to instruct these individuals not to disparage you.” But, guess what, that instruction is meaningless. You can’t sue them because they disparaged you if the employer’s only obligation was an instruction. You want to go to the mat and have an actual agreement not to disparage, not an instruction.
Robert Ingalls: 14:01 Do you put anything in there about references? Because I know that’s one that comes up a lot. People are worried that when they leave this job, the next thing they’re doing is job hunting, and they’re concerned about what that reference is going to look like. Does that get included in any of the agreements?
Josh Van Kampen: 14:15 99% of employers any more have a neutral employment reference policy. Guess what, you can’t sue them for breaching a policy after you’ve been fired. It’s not enforceable. You want to have the neutral employment reference provision in the contract, because then you can sue for a breach of contract. You can’t sue for a breach of a policy. You definitely want to fight to have a neutral employment reference provision in the agreement.
Josh Van Kampen: 14:42 Also though, you want to make sure, let’s say you did hire an attorney and the attorney asserted potential legal claims against the employer. You don’t want the employer to be able to run their mouth about your having hired a lawyer or threatened legal claims. In that instance, we’re going to want to insert language that says that if they are contacted for a reference by a prospective employer, that they’re not allowed to reference that you hired an attorney or threatened legal claims.
Robert Ingalls: 15:11 Sure. Do you address unemployment in any of these severance agreements, like if an employee decides they want to apply for unemployment? Has this come up?
Josh Van Kampen: 15:20 You definitely want an agreement not to contest your unemployment application in the provision. Normally employers are going to agree to that. If you don’t have that in there then, and they want to be jackasses, they could then contest your unemployment and possibly negate your unemployment benefits. You want to make sure that you’re on the same page with your employer that they’re not going to do that.
Robert Ingalls: 15:44 Sure. How does severance come into play with unemployment? Does that affect your potential unemployment?
Josh Van Kampen: 15:49 Yeah. You got to be careful, because at least in North Carolina and probably in most states you’re not allowed to collect unemployment while you’re also receiving severance, because you don’t have a loss.
Robert Ingalls: 16:00 Kind of double dipping.
Josh Van Kampen: 16:01 It’s double dipping. The safest thing to do is, if you’re receiving severance, not to apply for unemployment until your severance has been paid. Because you’re absolutely not qualified to receive unemployment while you’re also receiving severance.
Robert Ingalls: 16:15 Sure. Is there any other provisions?
Josh Van Kampen: 16:19 Another thing that folks are sometimes concerned with is how is the separation classified internally. Most folks don’t want to have to describe or explain a termination in a job interview. You can use the opportunity in a severance agreement to classify a separation as being voluntary, or as being mutual, or as being a job elimination or another option is to say a non performance-based termination. That way you can avoid those uncomfortable conversations in a job interview.
Robert Ingalls: 16:57 Is there any discussion ever about giving a positive reference?
Josh Van Kampen: 17:01 I don’t know why they never agree to that. Where I’m in a mediation or whatever, I’m like, “Come on. Write my client a letter. It costs you nothing.” I’d say about 85% of the time they just draw a line in the sand and say, “No.” For listeners, the best way to get around that is to not ask for that officially in the severance negotiations. If you’ve got a good relationship with your boss, under the radar your boss may give you a positive reference letter.
Josh Van Kampen: 17:32 If you push for it in the formal negotiations on severance, you’re going to get the no. I’m telling you, you’re going to get the no, and now your boss who might have given you an under the table positive reference might be scared off from doing so.
Robert Ingalls: 17:46 Got you. Earlier we talked about negotiating severance. What are the pros and cons of negotiating for a higher number?
Josh Van Kampen: 17:56 Well, the con is, at least in North Carolina, so when you make a counteroffer to a severance offer, it operates as a rejection of the offer. They’re not required to put that original offer on the table when you make a counteroffer. Now, in my negotiations especially because of the style that I have which is diplomatic and approaching this as a problem to solve, not banging on tables, I always tell my clients that I have little to no concern that an offer is going to be pulled because we made a counteroffer, just because of how we do it. In theory, when you make a counteroffer it can be rejected.
Josh Van Kampen: 18:38 The other thing that can be a little nerve-wracking for clients is that it’s very unlikely that we’re going to get your severance agreement enhanced within 21 days. You got this blinking light, at 21 days you have to sign this or they’re not going to have it on the table. Well, I can tell you that 95% of the time employers are still willing to pay you that original package regardless of whether 21 days went by, because they’re not offering it to you out of the goodness of their heart. It’s a business decision. They want you to sign that waiver and release.
Josh Van Kampen: 19:13 We just blow right by that 21 days, and I don’t ask for an extension. Don’t ask for an extension, because then they’re going to know that you’re worried about it being pulled. You’ve just got to be a cool cucumber, act like you don’t care, and trust your lawyer when he says, “Don’t worry. With the approach that we have and our history, just let me go by those 21 days. You’re going to be all right.” I’ve only had one matter in the 20-something years of doing this where I had an offer pulled, and that was just because the other lawyer was batshit crazy.
Robert Ingalls: 19:51 These things happen. It sounds like it lets the other lawyer or the company know that you know the ball’s in your court.
Josh Van Kampen: 19:57 Correct. Also, for them, they need to know my client’s not signing that.
Robert Ingalls: 20:04 How do I know what the value of my claim is? I know every case is going to be different, but in general.
Josh Van Kampen: 20:09 Well, it goes back to that string that was attached. What legal claims do you have that you’re waiving in exchange for the severance offer? On that one, sorry to say to our listeners, you’re just not qualified to be able to assess what your legal claims are worth. You should consult with an employment attorney. You should talk to an employment attorney anyway, even if you don’t think you have a claim, because there are these, remember these provisions that I said should be poison pills that you’re going to want to change. You should have a lawyer to go over your severance contract to begin with.
Josh Van Kampen: 20:43 While you’re at it, then you want the lawyer to tell you what are my legal claims, what are they worth. That is measured on two axes. One is what is your likelihood of prevailing in the case. What is your likelihood that you’re going to win? Then secondly, if you win your lawsuit, what are you likely to recover? Actually I think the next podcast we’re going to address the different kind of damages that you can recover in a lawsuit. Your lawyer’s going to tell you on the axes what you’re looking at.
Josh Van Kampen: 21:15 For me a lot of it is gut feel. I’ll go into the negotiations with the company with an idea of what I think our client should offer, but I never make an offer on my client’s behalf until I’ve had an initial phone call or even two phone calls with the company lawyer. Because I am dipping my toe in that water. I’m paying attention to his tone, everything he says. Because what I want to do for my client is we want to ask for as much money as we can possibly ask for, but without being detrimental and shooting ourselves in the foot.
Josh Van Kampen: 21:48 That’s why we never make an offer right out of the gates, because I want to have every single data point I can possibly think of. Now, the wildcard in severance negotiations, as well as, regardless of what you can recover in court, what leverage do you have. A lot of times our clients may know where the proverbial skeleton is hidden in the closet. Even though they’re legal claims, lets just say they’re B legal claims, they may have A-plus leverage. We would be foolish not to factor in all the leverage points, legal and non-legal, in trying to get our clients the best deal we can.
Robert Ingalls: 22:25 Sure. Tell me about the approach that Van Kampen Law takes to severance negotiations. When I walk in the door, I sit down and we start working together. What can I expect?
Josh Van Kampen: 22:35 Well, believe it or not, in an hour we’re able to complete a severance review. We’ve just done so many of them over the years and have a pretty good gut feel of whether or not we think that there’s a good opportunity to enhance a severance package. You have to remember that we’re trying to get a company to voluntarily sign a check. If you hire a lawyer who’s nothing but fire and brimstone, that’s not the lawyer you want in a severance negotiation setting, because he’s going to probably do more harm than good, and put them in the corner of the room when you’re trying to get them to meet you at a table.
Josh Van Kampen: 23:15 Approaches is really key, but you still need to be, on the one hand you’re extending an olive branch, but in the other hand you have to have a fist cocked, because they’re not going to give you a good deal because your lawyer was a nice guy. They also have to understand that you hired a trial attorney, an attorney who files a lot of lawsuits that isn’t bluffing. That’s why it’s really important to make sure that you hire a litigator if you’re trying to enhance your severance package and not just a run of the mill civil attorney.
Robert Ingalls: 23:49 Got you. Was there any last words on this subject you want to talk about?
Josh Van Kampen: 23:53 Just final thoughts in terms of pitfalls to avoid. Understand that your severance offer is highly confidential. There was actually an instance where there were negotiations around a severance, or a settlement. We may have talked about it before in a previous podcast, where the daughter of the executive got on social media and bragged about how the family was now going to go on a trip to, I don’t know, some extravagant place, and then made some flippant remark about the employer. In that instance, the severance was lost.
Josh Van Kampen: 24:31 Right off the bat, if you’re in severance negotiations and offers are going back and forth, if you’re represented by counsel or not, each one of those offers you have to treat like a family secret. Don’t leave your severance agreement sitting on the kitchen table. Certainly don’t bring it to the coffee shop, because you’re going to end up throwing away what could be a really good deal for yourself and your family.
Robert Ingalls: 24:52 Got you. Well, thanks Josh.
Josh Van Kampen: 24:54 You’re welcome. Thanks everybody.
Intro: 24:57 Congratulations for taking an important initial step in turning the tables at work. This podcast is just an educational resource. It does not constitute legal advice and is no substitute for consulting an employment attorney about your unique situation before making legal decisions. Visit our website for more online resources and videos at ncemploymentattorneys.com. Better yet, call 704 247 3245 for a free initial intake interview, so Van Kampen Law can evaluate your case. Until next time, keep your head up and your wits about you.