Employment Law: Severance Agreements

By Stephen Stewart, Dispute Resolution Solicitor

stephen.stewart@elselaw.co.uk, 01283 526218

A severance agreement is a document to record the terms of an employee’s departure including the payments to be made to the employee, in return for a waiver of claims against the employer.

Savvy job seekers know how to negotiate their salaries and benefits when they are hired, but do they realise they can negotiate how they depart?

Most employers offer a severance agreement that outlines the financial terms on which the employee will leave the company.

Before you go into negotiating your severance package, you should know what you might be entitled to, for example;

  • Typical severance packages often offer one to two weeks of paid salary for every year
  • Notice, holiday & benefits – check if you have a payment of lieu in notice (PILON) clause in your contracts of employment. If you do, this entitles the employer to pay you notice as part of your severance package rather than you working your notice. If not, you will be entitled to be compensated for accrued holiday and contractual benefits for the notice period even if you do not work it.
  • Bonus & commission payments – You may be entitled to receive all or part of any bonus or commission payments. This is subject to the terms of your contract and you being in employment at the time. In the event of a discretionary bonus arrangement, if the bonus has been paid out consistently in preceding years and is based on meeting specific targets which have been achieved, there is a good argument to say that the bonus should be paid.
  • Shares and options – If you have been given shares, options or participated in a share save scheme then how these are treated on the termination of your employment will be determined in most instances by the scheme rules.
  • Compensation for loss of employment – There are two types of compensation that may, depending on the circumstances of your departure, be appropriate to consider:

(a) Compensation based on your length of service, age and the current statutory maximum weekly pay of £525; and

(b) Compensation for loss of earnings.

  • Time scales – You should have 10 days to accept a severance agreement (according to ACAS guidelines)
  • In order to effectively waive statutory claims, a severance agreement would need to meet the statutory conditions for a valid settlement agreement.

Negotiating a settlement agreement can ease your transition to a new job, relieve stress and possibly provide a financial cushion for the future so whilst negotiating the above factors you might like to consider the following personal concerns such as;

  1. Your ongoing financial commitments
  2. Any potential cross over period from one employer to the next with regard to PAYE
  3. Continuation of employment benefits such as insurance or perks including company car’s and healthcare packages
  4. Any potential legal costs you may incur during agreement negotiations.

Your power in this negotiation may come from the fact that companies generally do not want you to give them a bad name or image relating the potential legal claims that you have against them in relation to your departure.

The ‘Layoff Payoff’

If you are laid off from your job, it’s just as important to negotiate your way out as it is to negotiate your way in. Employers have an interest in keeping you happy, you’ll often have some room to bargain. Do your research to find out what severance benefits you can reasonably expect from your employer, and then try to maximize them.

Remember! You have nothing to lose. If you don’t ask, you don’t get.

Else Solicitors have a dedicated team with a wealth of experience helping employees resolve employment disputes. For more information and an initial discussion please contact Stephen Stewart at Else Solicitors via email or phone: stephen.stewart@elselaw.co.uk / 01283 526218.

Share This

Copy Link to Clipboard