Severance for WeWork Founder Has Some Good Reminders

Most people took notice when WeWork recently offered Adam Neumann, the co-founder, former CEO, and current Chairman of the Board, a severance package reportedly worth $1.7 billion in stock, cash, and credit to walk away from the company.  For CNBC’s full article, click here.

While most of us will not be offered a $1.7 billion severance package anytime soon, it does offer a good reminder about general considerations that individuals may consider if provided a severance agreement:

  • Compensation

Of course, “more is better,” but consider other factors—is the compensation in stock or cash or something else (e.g., debt relief)?  What are the tax implications?  Is it lump sum or over a period of time?  Is the employer in financial distress and perhaps headed to bankruptcy?  How does that affect the timing and type of payment you may want?

  • Reputation

The expression “a good reputation is worth more than gold” can be especially true in the employment context.  As part of your severance agreement, you may want to negotiate for a good—or at least neutral—reference with respect to future employers.  Having a good start on your job search may be more valuable than trying to get every last penny out of your current employer.

  • Health insurance

Most employees are generally eligible to continue their group health insurance either under federal COBRA or North Carolina insurance laws.  But the more important question may be: who’s going to pay for it?  Continuation of coverage costs is usually the sole responsibility of the employee and can be very expensive.  Having that paid by the employer may be more valuable than other compensation, especially for family coverage.

  • Claims release

Your employer will most certainly want a release of claims from you; do you want one from it?  Many employees don’t need one—there’s nothing they’re worried about from their prior work. But if you work in a higher-paid sales or executive position, keep in mind the statute of limitations for claims of breach of fiduciary duty to the company or other business torts is typically multi-year.  That means if the company (or new management of the company) “discovers” later issues, you might get blamed and sued even years after you left the company.  It might be better to address that while you have some bargaining power.

  • Non-competes

If you have a non-compete, does it govern your post-employment conduct and is it enforceable?  This will depend on the specific limitations included, but contrary to popular belief, many non-competition agreements can be enforced.  Regarding a severance agreement, do you want to try to negotiate out of the noncompete by exchanging some of the above compensation?  Is the employer now (at the severance stage) trying to impose or alter your prior non-compete?  It might be worth accepting a new or enhanced non-compete –and trying to get more compensation for it—if you don’t intend to stay in the same line of work or will likely be retiring.

Conclusion

While it may be difficult to consider leaving your employer and position—whether voluntarily or involuntarily—having the right severance agreement on the way out can set the stage for a new and prosperous beginning to your new job or venture.