Negotiating Ohio Severance Agreements
You just lost your job and your employer wants you to sign a document so you get severance pay. Can you get more? Should you sign it?
You can get more if you have claims from your employment worth more than the severance pay you will receive for signing the severance agreement. But you should sign a severance agreement only if you understand and agree to all of its terms.
Why Severance Pay?
In Ohio, employers generally have no legal obligation to pay severance when they terminate employees. The legal reason behind this is “employment at-will.” In Ohio, this means a job lasts only as long as the employer and employee want it to last. Either of them can end it at any time, for any lawful reason, or for no reason at all. As a result, unless they agree otherwise, the employer’s only obligation at law is to pay terminated employees what they earned up to the point of termination. After that, employers have no further obligation to pay at-will employees, including severance pay.
So why do employers pay severance? Well, most don’t. For those who do, the reasons include:
- Voluntary Severance
- Severance Pay Plans
- Severance in exchange for a Release
Voluntary Severance Pay
Some employers offer severance pay voluntarily, without a legal obligation to do so. The amounts are typically modest and are motivated by an employer’s desire to do the right thing. From a rational economic perspective, you could argue that employers stand to gain a positive reputation for fair play, which gives them an advantage when recruiting employees.
That said, if an employer chooses not to pay severance voluntarily, employees have little legal leverage to negotiate for more severance pay. This changes, however, if the employee has potential claims, such as for discrimination, whistleblowing or harassment, and the employer is willing to pay for a release of those claims. This is negotiated severance.
Severance Pay Plans
Before we talk about negotiated severance pay, some employers have a severance pay plan that provides benefits in the event of certain job losses, like from a reduction in force. Severance pay plans typically use a formula based on length of service, like a week of severance pay per year of service.
Some severance pay plans are covered by the Employee Retirement Income Security Act of 1974 (ERISA). ERISA is the same law that covers employer group health insurance plans. ERISA requires employers who offer ERISA plans to put them in writing, provide written summaries to covered employees, provide copies of the plan on request, and not interfere with benefits in the ERISA plan. ERISA also gives employees the right to go to court, where they can get a court order for their severance benefits and receive an award of attorneys’ fees if they win.
For employees covered by a severance pay plan, ERISA means that they will know what severance they should receive and under what circumstances. Similarly, union employees covered by a collective bargaining agreement (CBA) could receive severance pay if it is a negotiated benefit in the CBA.
While employers can create severance pay plans, most do not. Employers who create severance pay plans can and do specify the terms, choose who participates, decide what to pay and can modify or terminate severance pay plans when they want.
When negotiating severance based on a severance pay plan, employers tend to be less willing to offer more severance than the plan delivers, even when employees have claims. This is because employers worry that if they increase severance pay for one employee they will have to do so for all.
Negotiated Severance Pay
Negotiating Severance in Employment Agreements
Legally speaking, the employment relationship is one based almost entirely on contract. This means employees and employers can negotiate any terms they want, including severance pay when the employment agreement ends.
In practice, employers tend to dictate employment terms, influenced mostly by what their competitors offer to hire the same employees. Since most competitors do not offer severance pay at the beginning of employment, severance pay negotiated in employment agreements tends to be rare.
Even so, in the right circumstances, employers may agree at the time of hire to pay severance in the event of a termination that is not for cause. This could be the case, for example, where a company in dire financial straits needs to hire top talent to survive. Employment agreements may also pay severance when employees resign for “good reason.” "Good reason” typically means that the employer adversely altered the employee’s working conditions by reducing pay, increasing duties, or demoting the employee.
Whatever triggers the severance pay, negotiated employment agreements will almost always require employees to release any claims they have at the time of their termination to receive the severance. In fact, it is almost a given that any type of severance pay will require a release of rights.
If employers fail or refuse to pay severance promised in an employment agreement, employees can file lawsuits for breach of contract to recover the amount of severance promised in the agreement. Conversely, if employees have claims worth more than the promised severance, they can turn down the severance pay, not sign a release and negotiate more severance pay or pursue their other claims.
Negotiating Severance when Employment Ends
Severance pay is mostly negotiated at the end of employment, especially when the termination violates the employee’s rights. Violations of the law give rise to legal claims, which employees can file in court. In severance negotiations, employers “buy” those claims before they get filed by paying employees severance in exchange for the release of those claims.
How Much Severance Should Employees Negotiate?
Employers should pay severance in an amount equal to the value of the claims that employees release. The hard part is agreeing on the value of the claims that are released.
In theory, employees’ claims are worth an amount equal to:
- what the employee would receive in court if they won,
- discounted by the probability that the employee will not win,
- minus the legal fees and cost to take a case through trial.
Predicting these variables is difficult and imprecise. A verdict could be years away, and no one knows what the jury will decide. Even if the jury returns a good verdict, an appellate court could take it away.
Despite this, experienced employment lawyers understand litigation outcomes well enough to value claims within broad ranges, based on the evidence supporting them. If the other side takes a similar approach, their competing assessments often overlap, leading to agreement on the amount of severance to pay.
Negotiating Other Severance Pay Terms
Although parties negotiating severance agreements typically focus on the amount of severance pay, severance negotiations cover many non-monetary terms. These can include agreements:
- Not to disparage each other;
- To keep settlement agreement terms confidential;
- For the employer to provide a neutral reference;
- For the employee not to reapply for employment;
- Consent to unemployment compensation claims;
- For the employer to pay for outplacement services;
- For the employee to return company property;
- Restrictions on future employment, such as non-compete clauses;
- Continued health insurance coverage;
- Payment of accrued bonuses or vacation days; and
- Timing and method of severance payment.
Conclusions about Negotiating Severance Pay in Ohio:
Negotiating severance pay, particularly in Ohio, is not always straightforward. The rights and responsibilities of both employees and employers are largely governed by legal standards and agreements in place. It's imperative for employees to recognize that severance pay isn't a given and understand the nuances of their individual situation. This includes potential legal claims they might have, the presence of employment agreements, or any severance pay plans that might apply.
While the allure of immediate severance might be tempting, it's crucial to consult with knowledgeable legal counsel before signing any documents, especially if they entail relinquishing rights. Ultimately, the value of severance should reasonably reflect the value of what an employee is giving up. Beyond the monetary considerations, one must also keep in mind the various non-monetary terms that can play a crucial role in shaping the post-employment relationship.