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Should I negotiate a severance package with my employees?

If you have contract with the union, the union will likely negotiate the severance package on behalf of the employees. Otherwise, you are free to negotiate the severance package with your employees.

Unemployment insurance benefits and severance benefits

Since unemployment insurance benefits are meant for people who have lost their jobs and have no further income, the employee might not be eligible for these benefits if your severance package to the employee makes it look like he is still working. For example, if you simply keep the employee on the payroll for a number of months and tell him not to come in while he looks for future work, he might be viewed by the state as still working for you.

You should check with an attorney who specializes in employment law to see if your employee will be entitled to unemployment benefits if he is collecting severance pay.

"Release of claims"

Some employers give severance benefits only if the employee agrees to a "release" that gives up any claims the employee might have against the employer. Those releases are usually legal and will be upheld in court.

Before drafting a release, you should consult an attorney who specializes in employment law to help you write the terms of the release.

What claims are released?

That depends on the wording of the release. Most employers require employees to give up all claims, including wrongful discharge claims and discrimination claims. And the release might even require the employee to give up claims that he or she doesn't even know about yet, e.g., a later discovery that the firing occurred because of age or disability, which would have allowed a claim under federal anti-discrimination laws.

Time to sign the release

You may give the employee as much time as you choose to sign the release - with at least one exception: if you want an employee to surrender a claim of age discrimination, federal law requires you to give the employee 21 days to consider the release and 7 days to change his mind after signing the release.