Wednesday, November 16, 2011

Negotiating a Severance Package

When discussing severance packages on termination of employment, the first thing employees need to remember is this:  Never sign anything without legal advice.

Similarly, one of the first things employers should remember is never to ask an employee to sign anything without giving them an opportunity to obtain legal advice.

On some wrongful dismissal disputes, you get 'make-or-break' issues, where the employer might not have any liability at all if successful.  These are cases involving issues such as constructive dismissal, deemed quit, or just cause.  Or sometimes a dispute can be between minimal liability and significant liability, where there is a question as to the enforceability of a written contractual term.  If there's a real dispute on any of these points on a high value case, it could well require a trial, or a significant compromise on the parts of both sides to reach a settlement.

However, in the vast majority of terminations, the only real dispute is about 'how much' - namely, the length of the notice period.  Sometimes, this is coupled with an argument about some of the Bardal factors - most notably, the character of employment.  But in most cases this dispute is not going to hold up a settlement for long.

If each side has a good lawyer in most of these cases, then both sides will probably have a similar estimated ranges - and an estimate is all you ever get in cases without a written termination clause - of the reasonable notice period that a Court would award.  So, in a given case, I might opine that an employee is entitled to 8-10 months notice, give or take.  There's always uncertainty.  A judge sympathetic to the employee might go higher; an unsympathetic judge might go lower.  So the employee hoping for a 12-month notice-period probably doesn't have his head in the clouds, nor does the employer hoping for a result in the ballpark of 6 months.  But neither side is likely to be able to reasonably expect such results.

As a lawyer, my job is to assess the risks of different strategies and advise my clients of the same, but it's up to the client to determine his/her own risk tolerance.  The key thing to remember is that nobody wants litigation, but some people are more willing to go that route than others.  Offers send messages - a skilled negotiator can often read the sweet spot on the deal after the first couple of offers - and the message that an unreasonable offer can send is “I’m not prepared to settle except on terms unfairly favourable to me.”

The other party might be prepared to concede, and settle on less-than-favourable terms to avoid litigation, but otherwise they're more likely to go further in the other direction, to send a clear response that they are not going to play ball, and to bring you into the range they regard as reasonable.  So, in the scenario I described above, suddenly you have an employee asking for 16 months and an employer offering only 4.  That is a big difference, and it is going to require both parties to completely change the philosophy of their positions to reach any middle ground.  Initiating litigation will often be necessary, and the more legal steps and the more negotiation that is necessary, the higher the legal costs of both sides go.

Alternatively, if both parties from the outset send messages that say “Let’s make a deal”, then there`s a higher probability that a quick agreement will be reached with minimal legal expenses, though both sides may be left wondering if they could have perhaps gotten a slightly better deal had they pressed the point further.

In other words, the harder you press your bargaining position, in an attempt to get a better deal, the more you will likely have to pay your lawyer.


This blog is not intended to and does not provide legal advice to any person in respect of any particular legal issue, and does not create a solicitor-client relationship with any readers, but rather provides general legal information. If you have a legal issue or possible legal issue, contact a lawyer.

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