Why Employers Offer Severance To Fired Employees

Employers in the San Francisco area routinely offer severance package to the employee they lay off or fire or even to those employees who choose to resign. This severance may include monetary compensation, additional stock options, continued health insurance coverage and other possible benefits. The amount of severance can be more or less generous and it can be more or less negotiable. The fact that an employer offers you severance doesn’t mean that you have or don’t have some kind of legal claim against them and it doesn’t mean that they believe that they violated any of your workplace rights.

The main two reasons employers offer severance are –

(a) A gesture of good will – employers offer severance because they have an interest in preserving a good will in the industry and make the transition of a separated employee to another job easier, and discourage the employee from saying about things about the company by making that employee a confidentiality and non-disparagement agreement.  Of course, severance payment is not guaranteed to achieve this goal, but softening the overall impact of termination is a good business practice.

(b) Avoiding litigation headache – whether you have a case or not, you can still make allegations and fight your employer in court or DLSE, etc… Even if there is no evidence of violations, it will take time and money for your employer to dismiss your case. An employer has an interest in making sure that they don’t have this headache, and they may be willing to pay a certain amount to have you sign a release and waiver and have the peace of mind that you will never come back and sue them for anything.