Common Terms of Employment Law Negotiation

Lump Sum and/or Salary Continuance: Fixed or variable pay? Questions to consider are whether the executive would be most comfortable with a limited salary continuation period, or would rather have a variable duration, depending on when the executive found a new job. Often a combination of fixed and variable pay is negotiated, providing both a floor and ceiling for the continuance.

Bonuses, Incentive Payment, Commissions: While most employers will base a severance agreement on a base salary, an executive can negotiate for some or all of the incentive compensation he or she might have been owed absent the termination. Often, a strong equitable claim for at least a pro rata share of the incentive compensation, especially toward the end of the year when such claims can be substantial, can be negotiated.

Unused Leave Pay: Be sure to include compensation for any accrued but unused vacation, sick or other leave pay. Often, this will be done pro-rata based on the time of year.

Benefits: An employer will often continue to pay for health benefits during a salary continuation period. Also, a discharged employee has the right under COBRA to continue heath insurance at existing rates and benefit levels for up to 18 months after the off-payroll date. Employers sometimes will continue other benefits, such as life insurance, pension or 401K contributions and vesting under stock plans. *If an employer terminates you in order to prevent you from obtaining a benefit (such as a vesting pension) you may have a claim under Section 501 of the Employee Retirement Income Security Act. If an employer terminates you in order to prevent you from obtaining compensation (for example, a large commission or bonuses) you may also have a claim for breach of the implied covenant of good faith and fair dealing.

Positive Recommendations: In drafting or negotiating a severance agreement, it is important to consider a provision regarding whether you will receive a positive evaluation or recommendation in the future from the company you are leaving.

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