While it is an upsetting thought, termination from employment happens to many employees at one point or another in their career. Whether you are an employer considering a layoff or an employee who has been terminated, it is important to understand the basics of severance agreements, as they are a fairly common too, and very well may come into play.
There are two primary goals of employers in offering severance packages to employees.
- Extending fairness and compensation to longer term employees
- Reducing the employer's exposure to potential liability in a lawsuit or administrative claim
More specifically, in providing severance to employees who have served faithfully for a number of years, the company is hoping to communicate a sense of fairness and respect to its remaining employees and perhaps even to the community at large. Conversely, there may be a desire for a company to limit its exposure to liability. It may then offer money and other compensation in exchange for a contractual release of all claims the employee has or may bring forth against the company.
If an employee falls into the second category, it is possible that he or she has some type of leverage and may be able to negotiate a better severance agreement. Leverage often comes in the form of one of the following: contractual, statutory or tort.
For instance, contractual leverage exists where the company has breached a company policy, employment agreement, or any number of various promises upon which the employee relied and which weren’t fulfilled. Similarly, statutory leverage may be in place in an instance where an employer violated a state or federal law, such as anti-discrimination. Lastly, tort leverage exists where the company has defamed or in some manner damaged the reputation of the terminated employee.
It is often difficult to identify when an employee has sufficient leverage with which to bargain. It is often the case that when the employee is terminated as part of a large scale layoff, leverage is minimized. On the other hand, when the separation is part of a small layoff, perhaps even an individual termination, the employee stands a much greater chance of achieving bargaining power as to severance terms. Additionally, it is important to note that whether the termination was “for cause” or “without cause,” is generally not a significant factor in whether or not a severance agreement is offered.
Along with the release of potential claims against the employer, significant compensation and benefits, such as insurance premium payments and outplacement services, may be at issue when dealing with a severance agreement. Thus, while there is no legal right to severance for either employees-at-will or employees under contract, it is beneficial to keep in mind and be familiar with this tool should the situation arise.