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When can employers refuse to fulfill a severance agreement?

On Behalf of | Nov 1, 2023 | Employment Law

Workers in certain professions tend to have a harder time bouncing back from a sudden termination than others. For example, engineers may need to spend weeks looking for a company that will hire them for an appropriate project and offer comparable compensation to what they currently receive. Executives and other well-paid professionals often experience a significant amount of downtime in between jobs, particularly if they lose their positions unexpectedly.

To that end, most people don’t have enough savings to live comfortably without work. One of the ways that employees can protect themselves from financial struggles in such scenarios is involves negotiating a severance agreement when they take a job.

When can an employer potentially justify refusing to provide a terminated worker with an agreed-upon severance package?

When they fire a worker for cause

Severance agreements often have rules that apply for layoffs or similar scenarios in which the company terminates a worker without a specific reason. Deciding to take the brand in a different direction would be one such scenario. However, if a company has documented issues with the worker’s performance or can raise credible claims that the employee embezzled, it may have the option of refusing to fulfill the agreement originally negotiated at the time of someone’s hiring. The more documentation a company has supporting its decision to terminate a worker for cause, the harder it may be for the worker to demand a severance package.

When the company becomes insolvent

Businesses often seek to include employee obligations among the dischargeable debts reported to the courts during a bankruptcy. Large severance packages may not seem like as much of a priority as paying base wages to those who have already put in a certain number of hours. In some cases, those who make claims related to wages and severance packages will prevail in court and obtain some or all of the support promised in their agreement. Other times, they may not receive everything they negotiated for during the onboarding process.

Understanding when a company could justify reducing or eliminating severance packages may help workers choose an informed path forward after a termination leaves them worried about their financial future. Seeking legal guidance tends to be wise under such circumstances.