Employers’ Cash-for-Clunkers Program: When to Pay Severance to Terminated Employees

It happens everyday. Employees are let go for poor performance or lack of work. After the decision to terminate has been made, employers must consider whether to offer the employee additional pay or benefits in exchange for a release by the employee of all claims he or she may have against the employer.

A separation and release agreement is simply the contract used to document the understandings reached by the parties. In addition to the severance payment and release, the employer might agree to provide a neutral reference or outplacement services for the employee. The agreement might also contain an agreement by the employee avoid working for a competitor for a period of time.image

When should an employer consider a separation and release agreement? The following situations are typical:

· A termination in which the employee has already asserted a claim against the employer;

· A termination in which the employer is concerned that the employer will likely assert a claim;

· A termination in which the employer is willing to provide extra pay or benefits above what the employer would normally be entitled in exchange for a waiver of claims.

Although a waiver of claims is very desirable, employers should consider the possible consequences of asking for such a waiver, particularly if the severance payment is going to be small. By asking for the waiver, the employer may suggest to the employee – for the first time — that he or she actually has a claim.

See also:

Top 10 Layoff Tips
Best Practices When Considering a Severance Agreement
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