Why Do Employers Offer Severance Pay?

Employers do not offer severance to be nice.

Employers do not offer severance pay out of the kindness of their heart for an employee that is let go. A company that decides to give a parting employee severance does it to protect their interests.

Not all companies offer severance pay and it isn’t a requirement in most instances. Yet, a growing number of businesses are putting packages together for employees that are let go. What is severance pay and why are a growing number of employers choosing to offer it?

What is severance pay?

Severance pay is sometimes given to an employee that is let go from a company. Although not a requirement in most instances, a company might sometimes choose to give a person an amount of money and benefits when laying off an employee. A person that is also terminated might get severance in some instances. Providing severance is just an agreement between an employer and employee.

Severance pay is often based on a metric, such as a number of week’s pay for the time an employee worked for a company. For example, someone that spent 5 years with an employer might be offered five weeks of severance pay when they are let go. One week of pay for every year working.

Although most employers claim severance pay is provided to a departing employee to help someone that will be jobless, this is only further from the truth.

Why would an employer offer severance pay?

Most employers would like an employee that is let go from their job to believe that severance pay is given due to the kindness of their heart. This is never the case. Most companies do not truly care about how a job loss might hurt someone financially or emotionally. Employers are in the business to make money and they do not hand out severance pay to be nice.

Severance pay is offered in exchange for an agreement.

Most of the time a severance package is offered to an employee as part of an agreement. This agreement could include releasing an employer from any future lawsuits and to avoid potential negative publicity from an outgoing employee. At the core a severance agreement is a form of bribery to someone that is dismissed from an employer. An employer will provide a monetary and possible benefit package in exchange for silencing a departing employee.

Although there are some state laws that might either allow or not permit certain things in severance packages, there isn’t much that can be done with a lot of what is written into them. Severance pay is an agreement. If you agree to it, you are consenting to an exchange for something and this is almost always silence in signing a release form. Therefore, companies like to offer severance.

According to a study by Lee Hecht Harrison on employer severance pay, 92% of the respondents stated they require a release from former employees in exchange for severance. Over 90% of the time when a severance package is offered an employee must sign a release.

Over 90% of Employers Require a Departing Employee To Sign a Release Form To Receieve a Serverance Package

Employers know most people won’t refuse to sign a release.

There isn’t anything that says you must sign a release in exchange for a severance package an employer might offer. However, most people that get let go from their job are not going to argue with getting some money since they would now be unemployed. Moreover, most average workers do not have much in emergency savings for something like a job loss. Employers know this.

Employers know most people let go from a job need money. This is why it is common for them to offer monetary benefits in exchange for a release from future lawsuits. A severance agreement could include waiving the right to sue in the future for discrimination, unpaid wages, or wrongful termination.

Although most companies like to behave as though they are helping a departing employee with severance pay, the truth is it is almost always only out of self-interest to avoid future litigation.

What can you expect if you are laid off and offered a severance package?

First, you can likely expect an employer or Human Resource representative to act as though they have sympathy for you now being unemployed. Although this might rarely be the case, the real motivation for an employer is to set you at ease and keep you calm. They want you to be relaxed in order to persuade you to sign their release agreement.

With the litigation society we live in today, signing any agreement to release a former employer from any future legal actions is going to be a big part of the process with receiving any severance. Your manager or HR representative might tell you to take your time and think things over before signing any agreement for severance. They will make it sound as though it isn’t really a big deal. However, it is indeed a big deal and the release agreement is the main reason for most employers to provide severance. As I previously mentioned, severance pay with an agreement is really a form of bribery and there isn’t any other way to describe it.

Severance Pay: At the core a severance agreement is often a form of bribery in exchange for silence.

Expect that your employer knows you will need the severance package they are offering. Most people that are just let go from an employer are not going to turn down any money or benefits because they need them.

What are your options if you receive a severance package in exchange for an agreement?

Just like any other legal agreement you do have the option of not signing a document in exchange for a severance package. If you do this, you just need to know that you will likely not get the money and or benefits being offered as you exit.

Why might you not want to sign a release agreement in exchange for severance?

First, you might actually have a case for some type of lawsuit. If you do, think carefully before signing any type of release associated with a severance package. Consult with an employment attorney. However, you do need to know that bringing a case against a current or former employer is not always easy and it is certainly almost always not cheap. Many claims of discrimination and harassment in the workplace do not go very far each year due to the time and cost involved.

You also need to know that it isn’t necessarily impossible to bring a suit against a former employer even if you do sign a release. However, it can make things much more challenging.

In addition to the standard release of future litigation in a severance release agreement, there might be some other reasons not to sign one so fast. You need to remember that your now former employer is going to be giving you something in exchange for your cooperation to leave your job peacefully. The most important thing now that you as jobless is to ensure there are not things in the agreement that could make it hard to get hired in the future.

Think carefully if your severance agreement contains a non-compete clause. If it does, this could really make it difficult to get hired in a similar role for a period of time. If you ever think you might want to work for the same employer letting you go in the future, you also want to ensure there isn’t a no-rehire clause in the severance release. This might prevent you from ever working for that employer again.

Should you negotiate for a better severance package?

There is some debate on negotiating severance. Some experts say there isn’t anything wrong with doing this while others say it likely won’t result in further monetary compensation or benefits. What I would say is it really depends on your employer and the relationship.

For most people in corporate America, there likely isn’t much wiggle room with a severance package that a company offers. You must remember in most instances there isn’t a requirement that a company offer it. This can vary by state and company size, but employers are almost always never quick to give out more than they need to.

If you have a good case for future litigation or knowledge of very damaging information on the company you are leaving, you could have a little more wiggle room for severance negotiation. Yet, you should know this can be a very delicate situation that could backfire. You might end up with nothing. Therefore, employers are quick to offer severance. They can and do sometimes withdrawal their supposed generosity and bribery.


Companies do not offer severance packages out of their noble kindness to people they let go. It is almost always offered as a form of bribery in return for an agreement. This agreement will almost always release the employer from future litigation. It could also contain no-rehire and non-compete clauses that might hurt future employment opportunities for an exiting employee.

Nothing says a person must sign a release and take a severance package. Yet, most people do it because they really don’t have much of a choice with being out of work. Employer’s know this and they use it to their advantage to avoid any future problems with a departing employee.


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