Not a Member? Get access to HR news and resources that you can trust.
Here is how HR can help prevent the missteps that could cost your company big in court.
Is your employee handbook ready for the changing world of work? With SHRM’s Employee Handbook Builder get peace of mind that your handbook is up-to-date.
Get the HR education you need without travel expenses or time out of the office.
Expand your influence and learn how to become an effective leader -- Join us in Phoenix, AZ, October 2-4, 2017.
Separation packages can be effective—but be careful
Sarah is a successful vice president of sales, but is struggling with Roger, a member of her account executive team. Roger has been with the company for about two years and consistently meets minimum performance standards, yet has difficulty controlling his temper and has a penchant for blaming others—both co-workers and clients—for his problems. As a result, few people trust him, and most walk on eggshells around him rather than deal with him directly.
The straw that breaks the camel's back comes when Sarah learns that Roger is complaining about her leadership and communication style to her peers and the organization's leaders, as well as to some key customers. She wants him gone. However, because he consistently meets minimal sales performance expectations, Sarah hasn't addressed Roger's conduct problems, even though they continue to plague her team. Still, she reasons that because of his inability to work as part of a team and his lack of trust and goodwill among peers and department management, as well as his aggressive behavior, ending Roger's employment swiftly may make the most sense. Sarah's proposed solution: offer Roger a separation package to move him out of the organization.
Separation packages typically mimic severance packages in terms of the structure of the offer—two weeks of pay for each full year of service, for example. However, with a separation package, there's no position elimination involved. Instead, the company simply opts to give an employee money to entice the individual to leave the company. A release is signed, and the company is held harmless so it can move forward with hiring someone else for the position.
"It sounds like a tidy solution at first, but it poses a number of challenges that aren't necessarily evident at the outset," said Rich Falcone (no relation to the author), shareholder and employment litigation partner at Littler in Irvine, Calif. "The request to separate Roger now with a separation package poses two significant risks: First, the employee may refuse to accept the company's offer. Second, it could make it more difficult for the company to terminate Roger in the future" since such a termination might appear retaliatory. "Third, the organization appears to be entering into this negotiation with little if any leverage to entice the employee to accept the separation package."
To address these shortcomings, Sarah will need to partner with her organization's HR and legal department to structure this intended negotiation appropriately.
3 Caveats When Considering a Separation Package
Caveat 1: The employee may have the upper hand in the compensation negotiation. If the company offers four weeks of lump-sum salary in exchange for Roger's signing a release, for example, and he demands six months, Sarah may be weakening her position. Since she has no leverage in this negotiation other than an intense desire to make Roger leave, she'll have little choice but to meet his demands for a six-month separation package if she wants him to sign and go.
Caveat 2: While a company certainly has the discretion to make a take-it-or-leave-it offer, threatening termination if the employee doesn't accept the package and sign the release is exceptionally problematic. Per Falcone, "Workers are sophisticated consumers who will reach out to an attorney to find out if the deal you're offering is better than what they could get in litigation. And if their attorney senses that there is a potential case not only for wrongful termination but also for other causes of action like harassment, discrimination or retaliation that carry punitive damage potential, then you may find yourself in court with little if any defense. After all, you won't be able to demonstrate cause for the separation."
Caveat 3: If the employee refuses to sign the agreement and you opt not to terminate at that point, you've now "shown your hand" and revealed your intention to remove the individual from the workplace. Therefore, as soon as you take legitimate steps to document Roger's substandard performance in the future, your actions will likely be interpreted as retaliation by an attorney who can make the argument that "Once he didn't voluntarily accept your severance package, you made up reasons to terminate him for cause." You can logically expect the attorney to argue that any reasons for subsequent progressive discipline were either based on pretext or were downright bogus.
A Practical Solution to Turn the Negotiation in Your Favor
There's a practical solution to this potential quagmire, and it lies in how you set expectations. Nicole Minkow at Pearlman, Borska & Wax LLP in Encino, Calif., advised, "Don't begin separation negotiations or offer any type of separation package without having leverage in the game. That leverage typically comes in the form of documented corrective action that places the individual's job at risk."
In Roger's case, his overly aggressive and threatening behavior toward co-workers, ongoing negative comments regarding customers, and habit of placing blame on peers any time something goes wrong give the company plenty of content to draft corrective action based on Roger's inappropriate workplace conduct. Depending on the nature of the behaviors and the individual complaints involved, a written warning or even a final written warning may be in order.
When this corrective action documentation is delivered to Roger, Sarah and the HR department may want to offer him the option of accepting a separation package as an alternative to potentially being terminated for cause. Sarah's part in the conversation might sound something like this:
The beauty of this negotiation is twofold: First, the pending written warning serves as a leverage point because Roger realizes that his job is may be in jeopardy. Second, you've now set up the negotiation so that he's asking you for the separation package, and you're offering to look into it to help him. No guarantees and no promises, but you now have him asking for your help because it's for his own good. In fact, even if he doesn't want to pursue the package option right now, you'll have quietly established that escape option should the need arise in the future.
No, this may not provide you with the ultimate solution you were hoping for: immediate separation. But you also have to assume partial responsibility for not necessarily having managed the situation appropriately in the past. After all, if Roger has demonstrated such problematic behavior that you now wish he would simply disappear from the workplace, there were likely opportunities in the past where you could have documented those issues formally on performance reviews or in the form of corrective action warnings.
"As in all successful negotiations, the transaction should be a win-win for both sides," Minkow said. "But you've got to have some form of leverage to rely on. Corrective action documentation will typically serve that purpose."
Keep your documentation tight and avoid including any recommendations that attempt to make people magically disappear overnight. Such recommendations typically won't work because you have very little control over the outcome, and you wouldn't want to expose your organization to unnecessary liability under circumstances that are otherwise within your control. Besides, you owe your people—even the difficult ones—more than that.
Paul Falcone (www.PaulFalconeHR.com) has held senior HR leadership roles with Paramount Pictures, Nickelodeon and Time Warner. A long-time contributor to HR Magazine, he's also the author of a number of SHRM best-sellers, including 96 Great Interview Questions to Ask Before You Hire (Amacom, 2008), 101 Tough Conversations to Have with Employees (Amacom, 2009), 101 Sample Write-Ups for Documenting Employee Performance Problems (Amacom, 2010), and 2600 Phrases for Effective Performance Reviews (Amacom, 2005). His newest book is 75 Ways for Managers to Hire, Develop, and Keep Great Employees (Amacom, 2016).
You have successfully saved this page as a bookmark.
Please confirm that you want to proceed with deleting bookmark.
You have successfully removed bookmark.
Please log in as a SHRM member before saving bookmarks.
Your session has expired. Please log in again before saving bookmarks.
Please purchase a SHRM membership before saving bookmarks.
An error has occurred
Recommended for you
Don’t Lose Sight! What Does Poor Preventive Care Cost Your Business?
New Pro Member Special
SHRM’s HR Vendor Directory contains over 3,200 companies