This might be a cliche, but dismissals are like breakups: hard to pull off correctly; stressful; and rarely mutual. In this blog post, I want to focus on the last point. While dismissals are virtually never mutual, there are circumstances where both the employer and the employee mutually part ways amicably. That’s right, in these cases you can be friends with your ex. How is such a thing achieved? Enter the exit package.
The Exit Package
Although requests for an exit package are more common with employees who want to retire, but do not want to resign and therefore ask for an arrangement that basically functions as a bridge to retirement, exit packages can be negotiated for any employee.
Recently, employees in the early stages of their careers have asked me how they can go about requesting an exit package from their employer. They say that while they are enjoying their jobs, they are also looking for a change and would rather not quit.
The upshot is that there is no obligation on behalf of the employer to give the employee requesting an exit package anything at all. Severance is only an obligation when the employer terminates the employment relationship without cause. As such, this can put the employee in a situation where they get nothing, but it also presents both parties an opportunity to get very creative with their proposals, in ways not possible in the context of dismissals. Accordingly, employers and employees can both benefit from a mutual separation deal.
Key Considerations
For employers, we normally advise them to consider exit packages in the following cases:
- When there is a risk of a constructive dismissal claim;
- When requested by an employee on leave who will not return in the foreseeable future, but where there is no clear case of frustration; or
- When the employee is a long-term employee.
However, given the creativity that’s possible in structuring these agreements, it can be advantageous to consider them in a broader range of circumstances. For example, a key employee leaving can be disruptive to business. The parties could negotiate an exit agreement which provides for a transition period, easing the disruptiveness of the employee’s departure in exchange for a compensation package. Since employees have no legal right here, the financial value of the offer can generally be lower than their severance entitlements. Of course, employers should insist and include a full and final release.
No Legal Requirement for Employers to Provide Exit Packages
For employees, it is important to understand that there is no legal entitlement to anything when requesting an exit package. While some executive contracts contain a resignation for good reason provision, which entitles them to resign and to receive an exit package, the vast majority of employees do not have such entitlements. As such, in these voluntary separations, the employer is making a gratuitous offer; do not expect your best case scenario. That said, since there is plenty of room to negotiate, you can reach an agreement on several points beyond just money. Indeed, both parties can get creative and play around with items such as:
- what code to put on the Record of Employment;
- the provision of reference letters; and
- the communications surrounding the departure.
This creative potential is a valuable element of exit packages.
Pith and Substance
In sum, employers need not fret when an employee comes to them asking for an exit package – it could present an opportunity to part ways amicably and to effectively reduce their liability. For employees, an exit package can be a way to preserve an important professional relationship and find a soft landing as they make a new career move.
The crucial thing to remember is that since there is no obligation or entitlement at play, conversations about exit packages are purely for gratuitous offers. Finally, any good exit package should contain a full and final release in favour of the employer. Employers should insist on that, and employees should expect to sign one as part of any mutual separation agreement.
If you’re an employee and are considering engaging your employer in negotiations for an exit package, we can assist you by guiding your approach, and in terms of how to structure a potential deal.
If you’re an employer and have been approached about an exit package, we can advise you as to your legal position. While there is generally no obligation to provide an exit package, we can review the situation and determine how advantageous such an arrangement can be from a business perspective.
As the old saying goes: if you think you need an employment lawyer, you probably do!
