When should you offer severance?


The idea behind a severance agreement is that an employee agrees to take something of value to which he/she is not otherwise entitled. Paying severance is above and beyond what an employer is required to do. However, it is thought by most that a severance agreement that includes a full release of claims is the only way an employer can be reasonably sure it won’t be dealing with the terminated employee again. Of course…. this peace of mind comes with a price!  

A severance package is typically provided under the following circumstances: 1) when an employee has been laid off, 2) employee’s position has been eliminated or, 3) when you have an employee you need to let go and they are in a protected category under the EEOC discrimination laws.

Many employers use the term “severance” loosely and think they need to pay all employees a severance. While this can be true, it is not always beneficial to offer a severance to an employee. For example, it is not wise to pay to someone who was caught stealing, engaged in insubordination, workplace violence, and/or has committed some form of harassment, even if he/she is in a protected class or seems like a high risk to sue.

02Here are some questions to ask yourself: Is severance necessary? Is the employee in a protected category under a discrimination law? What can you afford? Has the employee engaged themselves in a protected activity such as; taking a leave of absence, served in the military, or filed a workers’ compensation claim, and/or harassment complaint…etc. All these actions are protected activity and employers need to be aware. If it becomes known that employees who engage in egregious behavior are essentially “paid off” on their way out the door, the workplace conduct and morale are likely to be affected.

If you provide severance to your employees it is important to know these agreements should never be shortened or altered by yourself. The full release needs to be prepared by a HR Professional to be legally compliant.

01There may be times when even a totally justified, squeaky-clean termination happens. You think all is good but, yet it backfires! An employee determined enough to sue his/her employer will do so, and the company will end up spending a good chunk of change defending a claim by an employee who was fired or laid off.


When offering a severance agreement remember these two (2) things:

  1. Employers can’t force employees to sign the agreement. An employee who never had a thought about suing starts to think about things differently once he/she sees the agreement. He/She may look at the list of claims in the release and wonder if any apply to him/her. Reviewing the document is important. Don’t force an employee to sign.
  2. Employers must give employees a reasonable amount of time to consider the severance package. If employee is at least 40 years old, a federal age discrimination law—the Older Workers Benefit Protection Act (OWBPA)—requires the employer to give the employee twenty-one (21) days to consider the severance package. (You are entitled to 45 days if the deal is part of an early retirement incentive program.) If employer doesn’t give enough time, employee’s waiver of any age discrimination claim is not valid, and employee could still sue the employer. Under law, you must also give seven days after signing to change their mind and “revoke” acceptance of the severance offer. This seven-day period is required by law; neither you nor your employer can waive it.

If you would like to know more information about severance packages or other HR related matters, please contact Susan Arnold at 515-401-2233 or Susan@HRon-call.com


Susan Arnold
HR On-Call, LLC
p. 515.401.2233
e. Susan@HROn-Call.com


A little more about us:
Susan Arnold, owner and lead HR Consultant at HR On-Call, LLC. Susan has 20+ years of HR experience and provides a HR presence to business organizations without the overhead expense of a full-time employee. Susan helps business owners improve employer/employee relationships and allows them to focus on their business while resting assured that they are in full compliance with state and federal law.

Areas of expertise:

  • Reduce Employer Risk and Liability
  • Customized Employee Handbooks
  • Performance Reviews
  • Improve Employee/Employer Relationships
  • Background Checks
  • Personality Assessments
  • Guaranteed EEO Compliance
  • Employee Retention
  • Recruitment / Hiring
  • Employee Discipline/Discharge

Susan is passionate about her customers and listens to their needs. If you are interested in any of the details above or would like more information about her services, please contact Susan!

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