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3 Common mistakes to avoid when negotiating a severance package

A severance package is an optional but common agreement between an employee and employer that helps secure financial and lifestyle benefits for the severed employee. The agreement also outlines the limitations of the employee’s rights after leaving the company, such as lawsuits or negative claims.

Each package is tailored to the individual employee and often includes several layers of compensation tied to specific conditions. Understanding this agreement and negotiating maximum benefits is key to securing the best possible package. 

Common mistakes that result in a suboptimal severance package include:

Asking for too little

A severance package is a safety net that allows an employee to continue a specific standard of living for an outlined duration of time until another employment contract is secured. That said, the stress and emotional tolls of unemployment can create a feeling of insecurity, leading the employee to accept the first offer on the table. 

A good severance package will compensate for financial losses in addition to lifestyle perks, like health insurance, company vehicle, memberships, and investments.

On the company side, reaching an agreement with a severed employee, particularly high-level executives, is an important step to mitigate future legal issues. Severance packages create a ceiling for potential damage. As such, there is a lot of room for the employee to negotiate the ideal package. Once a severance package is offered, the employee is typically allowed 21 days to review, negotiate, or accept. 

Rushing into non-compete agreements

Most severance packages for sales staff, engineers, researchers, and executives will include a non-compete clause, eliminating the possibility of gaining employment with a presumed competitor for a specific length of time or within a defined geography. This measure mitigates the movement of clients or proprietary information from one company to another. Sometimes, the non-compete agreements may be too geographically broad or vaguely defined to be reasonable. 

Signing away important rights

Revocation of certain rights to specific actions is often in the fine print of most severance agreements. An employee may unwittingly sign away their rights to a legitimate cause, such as legal action against discrimination or sexual harassment by the employer. These types of rights should be excluded from severance packages, as they hold valid concerns, and an employee should maintain the right to disclose this information when applicable. 

Employees can avoid costly errors when negotiating severance agreements by carefully examining the agreement and educating themselves on all available options. These preparations ensure they get the most favorable terms to help them during a job transition.