Business Disputes: It’s What We Do
  1. Home
  2.  — 
  3. Executive Employment
  4.  — What is a severance package?
Photo of attorneys E. Kelly Conway, Michael E. Gehring and Stephen G. Harvey

What is a severance package?

On Behalf of | Nov 7, 2023 | Executive Employment

A severance package is a compensation package that employers offer employees who are laid off or let go under various circumstances. It can be an essential component of the employer-employee relationship and can better ensure a smooth transition away from an employment situation for both parties.

Several types of severance packages are designed to cater to specific situations. The first is a voluntary severance package offered to employees who willingly resign from their positions. They can include benefits like health insurance and job placement assistance.

Conversely, involuntary severance packages are offered when an employer decides to terminate an employee’s employment. These packages often include:

  • Compensation
  • Continuation of benefits
  • Outplacement services

A well-structured severance package should provide financial security to employees during the transitional period. This support can help them cover expenses while they search for new employment. A fair and consistent severance package can also protect employers from potential legal issues and disputes related to terminations.

Key elements of a severance package

The most crucial aspect of any severance package is the financial compensation provided to the departing employee. This often includes a lump sum payment or salary continuation for a specified duration.

Many severance packages also include continuing health insurance benefits for a certain period, providing essential coverage for employees and their families. Outplacement services that help the employee transition smoothly into a new job can include:

  • Career counseling
  • Resume writing assistance
  • Job search support

Lastly, severance packages may include a non-disparagement clause, preventing negative comments or actions that could harm the employer’s reputation.

A well-structured severance package can be a critical component of any employment relationship. Understanding the importance of severance packages and seeking legal counsel can ensure a fair and equitable arrangement for all parties involved.