What Is A Fair Exit Package?

Sometimes an employment relationship just doesn’t work out, and both you and your employer know it.

Your health may be suffering, your family and friends may be urging you to move on, and you know you would agree to leave if your employer offered you a payment.

However, you don’t want to put yourself at the risk of having no job and no income. That’s why you’ll only agree to leave if your employer is willing to pay you something that you think is reasonable – an exit package.

Working out what is fair is a matter of negotiation. What you think is fair may not be what your employer thinks is fair. Just picking a number is not going to convince your employer to pay you what you want. Naturally, you will want as much money from your employer as possible, while your employer will want to pay you as little as possible.

In order to be persuasive, the offer you put to your employer needs to relate to some objective factors that represent a standard of fairness for both of you. Factors worth considering include:

  • what your employment agreement entitles you to;
  • an estimate of what you would be awarded by the Employment Relations Authority if you were to take a claim against your employer;
  • how much your employer wants you to leave; and
  • assistance you may need to find another job.

Let’s look at these factors in turn.

START WITH YOUR AGREEMENT

Sometimes your employment agreement contains provisions that provide a starting point for a fair exit package.

Notice period

The notice period that you and the employer are bound to give if you resign or are dismissed are a useful starting point. This is especially so if your notice period is generous. Most employers will accept that it is fair you should at least be paid for the period of notice specified in your agreement (whether or not you actually work during that period).

Redundancy compensation

Your agreement may also specify that you are entitled to redundancy compensation in addition to the payment for your period of notice if you are made redundant. There is no mandatory requirement that an employment agreement provide compensation, so do not be surprised if there is nothing in your agreement about that. Even where compensation is provided for, the formulas for calculating what you should be paid vary from agreement to agreement because there is no minimum standard that must be applied.

If you are entitled to such compensation, you may be able to agree with your employer that your employment be characterised as a redundancy, so that you can be paid this amount. Again, because this is specified in your agreement, the employer may consider it a reasonable request. Be aware though that sometimes employers do not want to pay redundancy compensation if there is truly no redundancy.

Annual leave and sick leave

Annual holiday pay must be paid out on termination. This is a non-negotiable, which cannot be bargained away by either party. So you can take it as a given that any payment for accrued holidays will be paid to you on leaving.

Accrued sick leave, on the other hand, does not get paid out. Nevertheless, you may be able to agree with your employer that this be recognised in some other way if you have a substantial amount of leave owing. Your employer may be willing to pay a portion of it as a lump sum to you on your leaving.

WHAT IF YOU SUED YOUR EMPLOYER?

Think of what will happen if you and your employer don’t reach an agreement about your exit from the business.In some cases, if you do not agree to exit, your employer may dismiss you. (Your employer may even threaten to do just that as part of the discussions around your exit.)

That is not the end of the story though, because even if you were dismissed, you would then have the option to raise a personal grievance for unjustified dismissal. You might be able to convince your employer that it is fair you should be awarded what you might get if you sued them and won your case.

The Employment Relations Authority has exclusive jurisdiction to decide personal grievances for unjustified dismissal. Assuming your claim is successful, there are three main types of awards the Authority makes for such claims:

  • compensation for hurt and humiliation;
  • contribution to your legal costs; and
  • reimbursement of lost wages.

Compensation

This compensation is paid to you in recognition of the way you have been made to feel as a result of being dismissed.

To an extent, an award of compensation can be roughly estimated by referring to the statistics about past awards. You can view these statistics on the website of the Ministry of Business, Innovation and Employment. The statistics show that awards of compensation typically fall into a limited range, on average around $5,000 to $6,000 for an unjustified dismissal. (Though it appears the averages have started to increase of late.)

Contribution to legal costs

It is also possible to estimate what a reasonable contribution to legal costs might be, because at present the Authority typically awards a contribution to costs to the winning party at a tariff rate of $3,500 per day of an investigation meeting. While the amount of costs can vary according to factors, that is the starting point.

Reimbursement of lost wages

The most difficult thing to assess is the amount of income you would be likely to lose if you were dismissed and had to find another job.

The ideal position to be in when negotiating your exit is to have your next job already lined up. However, in that case you have not lost any income at all (provided the job you go to is at a commensurate remuneration level). So you would not be entitled to an award of lost wages.

More often though, you will not have a job to go to and you will not know how long it will take for you to get new work. It could be longer than you expect.

Nevertheless, be aware that the Authority typically caps awards of lost income at three months, unless you can provide a good reason why it would take longer than that to find another role (perhaps due to the time of year, the type of work you do, and your seniority).

Other considerations

Even once you have a fair assessment of what the Authority might award you if you were to win a claim of unjustified dismissal against your employer, that number may need to be adjusted upwards or downwards depending on:

  • how likely it is you will win your claim. If your employer has taken a robust, fair process and has good reasons to dismiss you, then your success in the Authority is less likely and you may need to accept a smaller payment for your exit;
  • how much it will cost you in terms of both time and money to achieve a favourable outcome in the Authority. A lawyer will be able to help you get a feel for the costs you will likely incur, and the time it will take to have your case heard and decided, but suffice to say that the contribution to costs that you get awarded by the Authority if you win will almost never cover your true legal cost, and it can be many months before you have a final outcome; and
  • how much it will cost your employer to defend your claim. Not only will a claim cost you to bring it, but it will likely cost your employer too. This naturally leads to the next factor you should consider…

HOW MUCH DOES YOUR EMPLOYER WANT YOU GONE?

It goes without saying that you have a better chance of getting a favourable exit package if your employer values your absence from the business highly. The more valuable it is to them, the more they may be willing to pay. Conversely, if they don’t want you gone, then you may find it difficult to get a payment from them that is acceptable to you.Reasons why an employer might want you gone may have nothing to do with you personally. It may be that they simply want to restructure the business without going through a proper restructuring process that may or may not result in the changes they seek.

Alternatively, there may be a conflict of working style or personality that cannot be easily addressed by the usual performance management, restructuring, or disciplinary processes.
If you know more about why the employer wants you gone, you may be able to use this to leverage a better package on your exit.

WHAT YOU MAY NEED TO FIND OTHER WORK

Even if you can’t increase the value of the payment, there can be other, non-monetary benefits that your employer may agree to and that may assist you to find work elsewhere, such as:

  • A reference letter. Sometimes employers refuse to give references, but may be willing to provide a certificate of service stating the period of your employment and a definition of your role. Just the facts, ma’am.
  • An agreed statement about your leaving. You may want to ensure this is tailored to protect you against any suspicions that you have not left of your own accord. You want your stated reasons for leaving to be consistent with what you will say privately in interviews with prospective new employers.
  • Confidentiality. Along with an agreed statement, you will want to ensure the fact and details of the agreement are kept confidential.

Those other benefits are often easier for an employer to agree to, because they come at no cost but are clearly fair if you are to have a good chance of getting work elsewhere.

CONCLUSION

If you can work out what your contractual entitlements are, what a fair award might be if you were to challenge your dismissal in the Employment Relations Authority, why your employer wants you gone, and what intangible benefits would assist you to find other work, you can use this information to formulate your proposal to your employer.

This might include a payment for your notice period in lieu of working it out (so that you don’t have to attend the office), several further months’ pay, an amount paid as compensation, and a contribution to any legal costs you have incurred in assisting you to finalise your exit. You may also make the case to your employer that other non-monetary benefits are required to help you find work elsewhere.

Don’t expect your employer to agree to your first proposal. However, if you continue to peg your proposals to objective criteria and good reasons, then it is more likely that you and your employer will reach an agreement about a package both of you consider fair in the circumstances.Good luck!