How to Handle Severance Packages with Care

Although it’s sometimes necessary, it’s hardly ideal when employers and employees must go their separate ways. Severance can help mitigate the circumstances, but it is not required by law for most employers in most situations. Still, that doesn’t mean you can be careless in how you handle severance packages.

Here’s how small businesses can better handle severance, including when and how it should be offered.

Note: This article is for informational purposes only. Employers are strongly encouraged to consult federal and state laws as well as a labor and employment attorney when considering a severance policy or package.

How Not to Handle Severance Packages

Consider how poorly Better.com handled recent layoffs just before the holidays.

In December, Better’s CEO fired over 900 employees in a Zoom meeting—without notice and effective immediately. The online mortgage lender originally offered only 30 days’ severance, which was soon doubled when laid-off workers threatened a lawsuit under the federal Worker Adjustment and Retraining Notification Act (WARN).

That approach was bad enough, but to make matters worse, Better.com included in its severance package a trophy, a certificate, and a company t-shirt—as if it were a consolation prize!

When Should a Severance Package Be Offered?

Since severance is not required by federal law in most circumstances, employers may use their discretion about when to offer it and what to include in a separation agreement.

To be clear, even if you don’t have a written severance policy for your organization, you should have the terms of a particular separation agreement documented in writing. Again, it is recommended you consult a labor attorney when drafting this agreement.

In fact, you should consider offering a severance package anytime you have concerns about potential litigation following an involuntary termination. Severance not only “softens the blow,” but a separation agreement can also protect you from further legal action.

Another situation in which to consider severance is whenever a manager with many years of service leaves an organization. A severance package acknowledges their loyalty to the company and can help them during the search for their next management position, which typically takes longer to find.

Not having a written policy gives small businesses flexibility in a situation that is already difficult to navigate. For example, while employers have discretion to offer severance whenever they wish, it may not be the best way to approach an involuntary termination for poor performance or for egregious misconduct. Still, in each of those situations, the employee’s behavior should be thoroughly documented to protect the organization.

How to Handle Severance Packages

HR and management should work together when it comes to separation and severance.

Even before a particular situation arises, HR should think through the worst-case scenarios and prepare for how to avoid them altogether if possible. This is good HR advice whether you’re dealing with termination, compliance, harassment, or any other high-stakes workplace issue. HR pros should always be proactive!

First, train managers on how to handle involuntary terminations. This should be included in regularly scheduled, dedicated days of manager training, but it should also be addressed in a manager manual that can be used as a reference.

In your manager manual, include the appropriate language to use in discussions leading up to termination as well as a Wrap-Up letter template that HR and managers can use to notify the employee and document all the details. This Wrap-Up letter template can be used when drafting a separation agreement.

For several reasons, it is not recommended you follow Better.com’s example. Specifically, even if an executive wants to initiate the conversation about firing or layoffs in order to take ownership of the difficult decision, managers should have those discussions with direct reports instead—after coordinating with HR, of course.

Delegating the announcement to someone more familiar with each employee and their situation will make the news more bearable. If an organization has implemented weekly 1:1 meetings between managers and their direct reports, that rapport encourages trust and candor, which is most important for the worst of times.

Even though managers should initiate the termination conversation, they should hand off any discussion of severance to HR. Managers usually want the employee gone as soon as possible, but HR usually wants to make sure the details are carefully arranged. When managers and HR work together this way to handle termination and severance, the tension between doing it urgently and doing it right is better balanced.

If you choose to offer severance, you should set the terms, including stipulations about the employee’s right to sue. Once again, the details of a severance package should be documented in a separation agreement, drafted in consultation with a labor attorney.

Even in difficult and delicate situations, HR’s most effective tool is clear and precise communication. When it comes to severance, though, you shouldn’t say it with a t-shirt!

Additional Resources

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