Letting Someone Go—The Severance Agreement
The worst thing about being a manager is firing someone. No matter how justified you are in doing so, it’s a terrible thing to do to anyone. While the impact is most deeply felt by the person being fired, there are ramifications for the rest of staff, for the nonprofit and its work, and for you. When you manage the situation effectively, you minimize the pain to all concerned and construct a healthy path forward.
This is the first in a pair of articles about various aspects of firing a team member. If you need immediate support, Managing to Change the World, by Green and Hauser of The Management Center, includes a very helpful chapter on this topic.
Nonprofits rarely terminate an employee for a manifestly bad act—stealing, mistreating others, making an unforgivable mistake, etc. The clarity about what should happen makes these firing relatively straightforward.
The harder firings—the vast majority—are usually characterized by mutual good intent but spoiled by some combination of poor performance, weak management, a change in organizational needs and financial difficulties. No one necessarily did anything wrong (or at least not THAT wrong), it’s just not going to work out. For these terminations, a Severance Agreement is indispensable.
The Severance Agreement offers benefits to the person being fired—additional compensation and often continued health care—in exchange for a release of claims that person might have against the organization. It extends the relationship between fired employee and the organization beyond the moment of termination, offering a bridge to the future instead of a cliff. In doing so, the Severance Agreement can make the termination less volatile, more constructive. Less horrible.
Many nonprofit leaders, particularly Board members, consider the primary value of the Severance Agreement to be protecting the organization from being sued by a fired employee. This is almost always wrong. The risk to most nonprofits of being sued for wrongful termination is extremely low. Most fired employees retain their commitment to the work of the nonprofit and are reluctant to cause harm to that work or their colleagues. Bringing a lawsuit is both expensive and unpleasant. Should the fired employee decide to do so anyways, most nonprofits carry insurance to safeguard themselves.
Vastly more important than providing another layer of protection against a minimal risk, the Severance Agreement:
Provides incentives for a healthy transition. Why would a fired employee cooperate in their own termination? Many do so because they care deeply about the work they do and their colleagues or they want to protect their professional reputations. Coupling these motivations with a financial benefit increases the likelihood of cooperation.
Eases the blow. The prime beneficiary of the Severance Agreement is and should be the departing employee. Why should the organization “waste” resources on a departing employee? Reversing perspectives makes the answer obvious: when an employee resigns, the nonprofit expects them to minimize the impact of that decision on the organization by giving plenty of notice, preparing departure memos, transferring relationships, etc. So when it’s the nonprofit that chooses to end employment, it should also mitigate the consequences of that decision—by providing severance.
Soothes concerns about legal risk. Whatever the actual level of risk associated with firing someone, fear of that risk is common. It can be hard to manage a firing compassionately when you—or your Board—are concerned that a misstep is likely to result in embarrassing or expensive litigation. The Severance Agreement allays that fear so you can focus more on doing the right things than avoiding the wrong ones.
Helps you sleep a little better. No matter how justified the decision to do so, no manager feels good about firing a team member. Offering severance makes it slightly less bad.
How much severance should you offer? For most employees of most nonprofits most of the time, the right answer is often around 2 - 3 months of salary plus coverage of health insurance premiums for a similar period of time. New employees should receive considerably less; those with significant seniority somewhat more. Remember that the severance offer does NOT include accrued leave. Payout may be subject to organizational policy, but not contingent on the signing of a Severance Agreement.
Arriving at an appropriate amount requires balancing considerations that would push the number lower against those that support a higher offer. Too low a number defeats the whole purpose of the Severance Agreement, failing both to incentivize cooperation and to provide the employee with financial support for their transition. Too high a number runs counter to the imperative of using available funds to directly support the mission and may feel impossible if the organization is under financial pressure.
The number may also be influenced by factors specific to the person being fired, including:
Future prospects of employment.
Quality of past service.
Weaknesses in management that contributed to the firing.
Blame-worthiness of the employee for the firing.
Financial resources of the fired employee, to the extent you know about them.
Perceptions of how the Board might react.
The benefit of taking these into consideration is that the severance offer is more likely to be appropriate to the employee and so meet the objectives of the Agreement. The downside is that customizing severance offers is both agonizing and can undermine both the reality and appearance of fairness.
Adopt a severance policy. A severance policy can serve as a starting point whenever anyone is fired or forced to resign. The policy should include:
Circumstances under which severance will and will not be offered (egregious conduct, program reductions, forced resignations, etc.)
The factors that will be considered in determining payment amounts.
Upper limits of severance payments.
A severance policy also supports an appropriate level of oversight. Having approved the policy, the Board need only be engaged when there is a divergence.
Should you negotiate? Generally, no. The severance benefit you initially present should be your best offer, either because it adheres to the severance policy or your best effort to balance competing factors. The only reason to negotiate the severance benefits could be if the value of what the departing employee is providing exceeds what you have already offered. As already discussed, this will almost never be the case.
That said, do consider requests to adjust nonfinancial terms. These may matter a great deal to the fired employee and almost not at all to the nonprofit. Unlike the financial terms, negotiating these terms is unlikely to raise fairness concerns.
Of course, the consequence of not negotiating financial terms may be that the fired employee declines to sign the Agreement. Such a decision will come several weeks after the termination, meaning that, even unsigned, the Severance Agreement has supported the transition through this difficult time.
Do you need a lawyer? While the legal aspects of the Severance Agreement may be its least important, it’s still a legal agreement. Even if you don’t consult a lawyer each time you fire an employee, an employment attorney should draft—or at least review—a form agreement. It’s generally a good idea to have a lawyer familiar with your organization ready to provide support if things get complicated.
What if the fired employee gets a lawyer? Don’t panic. Severance agreements explicitly advise the fired employee to consult a lawyer, so it shouldn’t be a surprise if they do so. The presence of a lawyer rarely changes the underlying dynamics; it just means that the interests of the fired employee will be more effectively—and assertively—represented.
Any correspondence from a fired employee’s attorney should be immediately shared with your legal counsel, who will then advise you on how (or if) to respond. However, remember that such letters are easy to write but harder to follow up on. Lawyers writing these letters don’t necessarily expect anything to come of them. Unless otherwise advised by your own attorney, they shouldn’t be cause for concern.
Again, this discussion applies to most firings—but not all. When the firing is more complicated, involving egregious behavior either by the employee or the organization, a Severance Agreement must be approached differently. The primary purpose shifts from facilitating a smooth ending of a relationship to minimizing risk or redressing damage.
With these unusual exceptions, the Severance Agreement, whether or not it’s actually signed, makes every other aspect of the firing easier. It provides a backstop to legal concerns and a reason for the fired employee to cooperate, so that you can focus on the most important aspect of the firing—the staff who remain and moving your new team forward.