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Negotiating employment settlement agreements: The need to show both illegal conduct by the employer and actual, calculable damages like lost wages

You can’t effectively negotiate a severance agreement just by showing you lost your job. You have to provide credible evidence that the job action was illegal (e.g., discrimination, sexual harassment, retaliation for whistleblowing), and that you will experience serious financial loss as a result. You have to prove both legal liability and actual, calculable damages. Each negotiation requires an individualized assessment.

Perhaps you were already looking and are fortunate enough to have a new job lined up with comparable salary and benefits right away. In that case, you may not have any damages because you have no lost wages.

For the purposes of this article, we will assume you were not prepared for the job loss. Assuming the employee can corroborate his/her legal claims, the next steps are figuring out how to: (1) calculate the amount of damages; and (2) use this information to leverage a severance agreement.

Here are two examples with factors to consider when you seek an enhanced severance agreement or a settlement agreement.

Example 1: An employee loses his or her job after she reported illegal discrimination. If she expects to find a job with comparable salary and benefits within 6 months, she could start with what is called a “settlement demand” of 12 months of severance, with the goal of getting 6 months severance pay. NOTE: Unless the adverse job action involved egregious misconduct and she was seriously traumatized, the courts do not place a high value on what they call “garden variety” emotional distress. In that case, the focus should be on recovering lost wages. Elsewhere on this blog I’ve written about calculating emotional distress damages.

Example 2: You worry that you will find a new job but it will pay dramatically less. You can  negotiate the severance package to cover both the period of your unemployment and the pay difference between the old and new job. Let’s assume you were making $80,000. You expect that you will be unlikely to find a new job for 6 months. You’ve checked the job market and available jobs only pay $40,000.This represents a calculable difference of $40,000 for one year. If, for example, your ultimate goal of getting six months of lost pay ($40,000) plus the difference between your old and new salary for 2 years ($40,000), your goal will be a negotiated severance of $80,000.

Don’t start with your bottom line number. Unless you find some new “smoking gun” piece of evidence, you can’t negotiate “up” once you’ve given a lesser settlement demand.

Pamela A. Smith
Law Office of Pamela A. Smith
233 Needham Street, Suite 540
Newton, MA 02464


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