Protecting Employers Since 1985
Yes, Severance and Release Agreements Can Protect Employers: Use These Agreements Effectively!
If an employer is planning on terminating an employee whom the employer feels may be litigious or a “high-risk termination,” then the employer may want the employee to sign a carefully prepared severance and release agreement. Giving an employee severance (i.e., money or something of value) in exchange for the employee signing a release of all claims against the employer is a legally acceptable mechanism for an employer to avoid potential litigation.
What is a high-risk termination? Examples of “high-risk” include: an employee out on workers’ compensation leave; a pregnant employee; an employee who has physical or mental disabilities; an employee who is 40 years of age or older; an employee who is a member of a minority race, religion or national origin. There may be multiple reasons for considering an employee “high-risk” with regard to a proposed termination. Other examples of “high-risk” include: an employee who has lodged a sex harassment complaint; an employee who has made a complaint about the company to a government agency; an employee who has recently been out on Family and Medical Leave.
Severance is not required in Illinois: Surprising to many Illinois employers, there are no actual legal requirements that an employer must give any severance to a departing employee. This is a commonly believed myth. Of course, if an employer has made a contractual promise in an offer letter or in a written employment agreement, then the employer must abide by the terms of that offer letter or contract. Usually, employment contracts or offer letters for only very highly paid or key employees contain mention of severance if the employee departs from the company for any reason. It is becoming a rarity to promise severance.
In today’s work world, for the vast majority of Illinois employers, severance is completely discretionary on the part of the employer. This means that when an employee quits or is fired, the employer is under no legal obligation whatsoever to give the departing employee any severance at all.
Why would an employer want to offer severance to a departing employee? Usually it is because the employer perceives the departing employee to be “high-risk.” Sometimes, it is because the employer wants “closure” in terminating the employee. Occasionally employers offer severance to “reward” a faithful longtime employee who is being terminated after many years of dedicated service (this situation often arises in a “restructuring” of the workforce).
Giving an employee severance (it could be any amount, within the sole discretion of the employer) in exchange for the employee signing a release of all claims against the company is a way an employer buys protection from potential litigation.
Many legal issues impact a severance and release agreement: If an employer decides to offer a severance and release agreement to a departing employee, it is extremely important that the employer have an experienced employment lawyer carefully review that document. There are many legal issues which impact the legal enforceability of such an agreement. For example, departing employees who are 40 years or older must have special terminology (required by Federal law) in the release agreement for it to be legally enforceable.
Group release: Also, if an employer is planning on terminating/laying off a group of employees (a group is defined as two or more departing employees), and even one of the employees is 40 years of age or older, then a special group release must be drafted in order for it to be enforceable in such a situation. Special wording in the group release (and a special information attachment) is required by Federal law.
How much severance? Clients often ask me how much severance they should give the departing employee. My standard response is: give the departing employee a generous enough amount so that hopefully the employee will want to sign the severance and release agreement. If the employer anticipates that the departing employee is likely going to negotiate the amount of severance, then the employer might start off with an amount lower than the actual amount the employer is willing to offer.
Severance can be a remarkably effective tool. Companies should be aware that this option exists and can give the company great protection in high risk termination situations. For assistance with difficult terminations, release agreements, IDES benefits claims, etc., contact Attorney Nancy E. Joerg who can be reached at Wessels Sherman’s St. Charles, Illinois office: 630-377-1554 or email her at email@example.com.
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