top of page
  • marketing68650

What Employers Need to Know About Severance

From ensuring severance is clearly compensation to including a look at employee performance, here are 10 answers to the question, "What do employers need to know about severance?"

  • Be Aware of “Quid Pro Quo” Perspectives

  • Consult With Legal Counsel to Avoid Making Mistakes

  • Set Clear Expectations

  • Remember, Severance Isn't Required by Law

  • Focus on Confidentiality Details

  • Always Be Prepared to Negotiate

  • Check Specific State Severance Laws

  • Stay Consistent

  • Create a Win-Win for Employers and Employees

  • Review Employee Performance Quality

Be Aware of “Quid Pro Quo” Perspectives

Employers should be wary of the fact that any severance package may have the potential to be construed as a quid pro quo arrangement. While an employee may have a valid claim to a severance package, the terms of that package could be seen as a form of compensation to not file a complaint against the company.

Therefore, employers should be very careful when crafting severance packages and should be especially wary of including non-disclosure agreements. Doing so could potentially expose the company to violating labor laws.

Matthew Ramirez, CEO, Rephrasely

Consult With Legal Counsel to Avoid Making Mistakes

The severance process is deceptively simple. Without competent legal counsel, you will likely make mistakes in both the way the severance is presented to the employee and the content of the written severance agreement.

First, are you engaging in a standard termination-severance of a single employee, or are you terminating several employees (possibly a "reduction in force" which is governed by different laws)? Regardless, in any severance process, while a written severance agreement isn't required, it is certainly your best practice. Gloves aren't required to climb Mount Everest but you better have a pair.

The severance agreement should contain key terms that protect the company. For example, it should state the amount paid to the employee and how it was calculated and will be paid, general releases of claims, an exclusion of claims not waived, post-employment obligations including restrictive covenants, confidentiality, non-disparagement, and many other terms.

Because of the high likelihood of mistakes occurring in the severance process without legal counsel, it is not something a business owner should engage in.

Robert Reder, Attorney, Blythe Grace PLLC

Set Clear Expectations

Employers need to set clear expectations on severance packages to employees to avoid hardship, as it can help ensure that employees are treated fairly and with respect during the separation process.

Saying "we will do what's 'fair'" is simply not clear. Without clear expectations, employees may be uncertain about what they are entitled to receive, creating stress and financial difficulties.

Additionally, setting clear expectations on severance packages can help prevent misunderstandings and conflicts between employers and employees. It can also help avoid the need for legal action, which can be costly and time-consuming for both parties.

By setting clear expectations, employers can help ease the transition for employees and ensure that they are able to move on to new opportunities in a more positive and financially secure manner.

Brian Hawkins, Marketing Manager, GhostBed

Remember, Severance Isn't Required by Law

As an employer, you need to know that severance is generally not required by law, except for a few circumstances. In the United States, most employers don't have to provide severance pay to terminated or laid-off employees.

However, as mentioned already, this rule has a few exceptions. So when do you have to pay? For example, when your actions violate certain laws, such as the Age Discrimination in Employment Act (ADEA) or the Americans with Disabilities Act (ADA).

In that case, the employer may be required to provide severance pay as part of a settlement or court order. You are also obliged to pay such compensation by the provisions of the employment contract, or any other written agreement concluded between the employer and employee that includes severance pay.

You also might not be able to avoid severance payments when your policy provides such an option. But, in general, employers have the discretion to decide whether or not to offer severance pay to terminated or laid-off employees.

Nina Paczka, Community Manager, Resume Now

Focus on Confidentiality Details

A strong focus on the confidentiality details of a severance agreement is a must for employers. Part of the agreement should always include what an employee is permitted to disclose about a company to others. This protects valuable business information and internal processes from being made public. One excellent policy is to make the severance agreement itself confidential so all the information therein stays between the company and employees only.

Adam Bem, Co-Founder & COO, Victoria VR

Always Be Prepared to Negotiate

It is crucial that employers be aware that exiting employees may ask to negotiate severance packages. Without it, managers won't be prepared to handle such requests in a fair and consistent manner. Moreover, employers should have a clear and consistent policy in place for handling severance negotiations.

There are several reasons why an employee might ask to negotiate their severance package. For example, an employee who has been with the company for a long time or who has played a key role in the organization may feel that they are entitled to a more generous package. Similarly, an employee who is leaving the company on unfavorable terms, such as due to a layoff, may feel that they deserve additional compensation.

Regardless of the reason for the request, employers must approach severance negotiations with a clear understanding of their own interests and a willingness to be fair. This way, the process will be smooth and amicable, and any potential legal issues will be avoided.

Piotrek Sosnowski, Chief People & Culture Officer, HiJunior

Check Specific State Severance Laws

Some, but not all, states have laws governing layoffs and severance packages, as Twitter has recently found out. Elon Musk recently laid off thousands of Twitter employees, some of whom have initiated class-action lawsuits alleging that Twitter broke California state law regarding severance. Before initiating layoffs, employers should understand which states and the specific laws that may apply to their company.

Gordana Sretenovic, Co-Founder, Workello

Stay Consistent

The most important aspect of building severance agreements is the consistency of the terms. When employers create guidelines for severance pay calculation, it should primarily include a fair balance of job level and tenure. This helps increase transparency in the process and reduces subjectivity.

Tony Deblauwe, VP, Human Resources, Celigo

Create a Win-Win for Employers and Employees

Not only does it support employees who are facing job loss, but it also provides them with the financial means to make their transition into a new career smoother and more successful. It can help bridge the gap between an employee's old job and their next opportunity, allowing them to take some time off in order to explore different options or even take up part-time work if necessary

At its best, severance packages provide much-needed security for those out of work, offering resources (both financial and professional) that can help individuals through difficult times. While employers may view severance as an additional expense they could do without—especially during tumultuous economic periods-investing in this kind of support, not only benefits employees directly but will often lead to long-term rewards in terms of employee loyalty and retention rates down the line

In short: Severance isn't just good for workers; it's great for businesses, too.

Sarah Watton, Director, Proactive Healthcare

Review Employee Performance Quality

Most employers feel obligated to pay severance to each employee on their payroll, but this is not a must if the termination was due to poor performance. When an employee consistently underperforms, and there is evidence to show that this led to their termination, they are not liable to get any severance.

However, they can still sue you; thus, a labor court will determine the matter. It is vital to let employees know that they have been terminated because of underperforming and that they will not be getting severance to help avoid further conflicts.

Alvin Wei, CMO, SEOAnt