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Severance Agreements

| Oct 17, 2020 | Firm News |

Under Pennsylvania law, most employees are considered to be employed at will. This means that the employee can be terminated for any reason — or for no reason at all. And there is no law requiring the employer to pay severance to a terminated employee. Nevertheless, terminated employees will often request, or even expect, to be paid severance upon the termination of employment. Some employers have policies establishing severance based upon factors such as seniority. Others consider these decisions on a case by case basis. Still others do not pay severance under any circumstances. So what are the considerations that factor into the decision to offer severance:

  1. Generosity/Goodwill – Employers may feel that providing compensation to a separated employee is simply the right thing to do. Like a discretionary bonus, severance can be viewed as a reward for years of loyal service.
  2. Company Morale – Reductions if force may be necessary, but a company should consider the morale of a terminated employee’s colleagues who are to remain employed. Treating a separated employee with generosity and largesse sends the right message.
  3. Release of Claims – Paying severance is usually conditioned upon the employee’s release of all claims against the employer. Eliminating the possibility of defending a lawsuit may have a substantial value to an employer.
  4. Acknowledgment of Restrictive Covenants – A written severance agreement is an excellent vehicle to obtain a separated employee’s acknowledgment of post-employment restrictions, such as non-competes, non-solicitations, etc.
  5. Transition of Duties – If an employee that has been terminated will be needed to transition her duties and/or assist in other post-termination matters, severance can be an excellent incentive.

An employer should consider these factors to determine whether to offer severance, and if so, how much severance is appropriate in a given situation.

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