Severance Agreement Cost

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What does a severance agreement cost? If you are the owner of a company or someone looking to take a new job, you may want to know how much a severance agreement will cost. Let’s explore this question and review some general information about severance agreements and how they are used.

How Much Does a Severance Agreement Cost?

A severance agreement is a legal contract between an employer and an employee that lays out the terms and conditions of a compensation package that the employee will receive when they leave the company.

In this agreement, both the employer and the employee have certain rights and obligations. Severance agreements are usually negotiable, and although they are not required by law, many company owners use them to show their employees goodwill or be more appealing in a competitive job market.

Some common benefits you may find in a severance agreement include:

  • Continued insurance
  • Assistance in finding a new job
  • Continued paid salary depending on the length of employment
  • Stock options

Whether you are the employer supplying the severance agreement or the employee considering signing this agreement, it is always good to consult an attorney.

A lawyer familiar with severance agreements can draft a contract that protects the employers’ interests while also benefiting the employee. A lawyer can also review a contract for a potential employee to ensure the agreement is fair and has their best interests in mind.

Based on ContractsCounsel’s marketplace data, the average cost of a project involving a severance agreement is $591.67.

What's Included in a Severance Agreement

Severance agreements are typically negotiable, so no two agreements will be the same. The following terms, however, are included in most severance agreements:

  • Employment Details. The severance agreement should include the employee hire date, termination date, job title or role, and how long the employee has to accept the severance agreement.
  • Severance Pay. Severance pay is the continuation of pay after you end your employment with the company. Typically, these packages offer one or two weeks’ pay for each year worked, but this can be negotiated. Some employees receive up to four weeks’ pay for each year worked. Severance pay is offered as either a lump sum or can be spread out over a couple of years for tax purposes.
  • Insurance Coverage. Some companies may offer continued insurance in a severance agreement package. COBRA (Consolidated Omnibus Budget Reconciliation Act) allows 18 months of continued coverage after termination of employment. Other insurance considerations include life insurance and disability income insurance.
  • Stocks, Retirement, and Pensions. You may have additional stock, retirement, and pension options in a severance agreement depending on company policies.
  • Outplacement Services. If you have been laid off, you will need to find a new job. Some severance agreements offer outplacement services meant to help you find new employment.
  • Unemployment Insurance. If you have lost your job through no fault of your own, you may be eligible for federal unemployment insurance. However, your employer has the right to dispute your claim for unemployment insurance, so it is essential that you speak to them before trying to claim this benefit.
  • Liability Release. In most agreements, the employee must agree not to pursue any legal claims against the company after accepting the severance package. Claims covered usually include wrongful termination, civil rights violations, FMLA violations, and discrimination.
  • Confidentiality Clause. Some terms of the severance agreement may be confidential to prohibit the employee from disclosing the details of the contract. The confidentiality clause can also protect sensitive company information that employees cannot share after they leave.
  • Non-Compete Clause. A non-compete clause prohibits an employee from entering direct competition with their former employer.
  • Non-Disparagement Clause . This clause prevents employees from spreading negative information about their former employer.

Many of the clauses in a severance agreement protect the company, its remaining employees, and its shareholders. Therefore, it is important that if a company offers severance packages, their agreement is professionally drafted by a knowledgeable attorney.

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Why Do I Need a Severance Agreement?

Severance agreements are good practice for larger companies for several reasons. In addition to showing good faith as an employer and making your employees feel valued, a severance agreement can prevent employees from filing wrongful termination lawsuits.

Severance agreements are also a great bargaining chip if your company is trying to hire a key person in a competitive job market. In addition, a good severance package can help draw highly qualified employees to your company.

Severance Agreement Projects

Severance Agreement Drafting

Severance agreements are important documents because they lay out the terms and conditions both an employer and employee must follow when an employee leaves a company. A poorly drafted severance agreement can have dramatic consequences for either party.

It is important for companies who offer severance packages to hire an attorney to draft a valid contract.

An experienced attorney will know the contract and employment laws in your state and be able to create an agreement customized to your company’s needs.

Severance Agreement Review

Suppose you are beginning a new job and are offered a severance agreement. In that case, it is a good idea to have your attorney review the contract before signing it.

Your attorney can help you fully understand your rights and obligations under the severance agreement and ensure that it is a fair deal. In addition, severance agreements are often negotiable, so your lawyer can also help negotiate favorable terms.

Severance Agreement Drafting Cost

You will incur legal fees if you hire a lawyer to draft a severance agreement. In addition, a lawyer will charge for the time it takes to prepare the contract and may include additional fees for consultations and communication.

ContractsCounsel’s marketplace data shows severance agreement drafting costs to be $625 across all states and industries.

Severance Agreement Review Cost

Suppose you choose to draft your severance agreement, or you must sign a severance agreement that has been provided to you. In that case, you can hire a lawyer to review the contract. A lawyer will charge for their time reviewing the contract, but the fees are typically less than drafting fees.

ContractsCounsel’s marketplace data shows the average severance agreement review costs to be $525 across all states and industries.

How Do Lawyers Charge for a Severance Agreement?

Hourly Rates for Severance Agreements

It is common for contract lawyers to bill their time using an hourly rate structure. The lawyer has a set hourly rate and will log time in a timesheet while working on the client’s case or project. The client will be billed after the job. This is typically the safest way to charge clients.

ContractsCounsel’s marketplace data shows the average hourly rate for a severance agreement lawyer ranges from $200 - $350 per hour.

Flat Fee Rates for Severance Agreements

Flat fee billing structures are becoming more common for contract drafting projects like a severance agreement. A lawyer will provide a flat-fee quote to the client for the requested legal services in this fee structure. This fee is generally paid upfront before work begins.

It is important to ensure the client knows what services are included with the fee before starting the project. For example, additional consultations, communications, and revisions could incur more legal fees.

ContractsCounsel’s marketplace data shows the average flat fee rate for a severance agreement is $591.67.

Get Help with a Severance Agreement

Do you need help with a severance agreement project? If so, post a project in ContractsCounsel’s marketplace to receive flat fee bids from business lawyers to handle your project. All lawyers on the ContractsCounsel’s platform are vetted by our team to make sure you are provided with top tier service.

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