June 02, 2026 | Posted By: Emma Doull
Employers often assume that a well-supported termination decision is a safe one. And from a purely legal standpoint, it may be. But legal defensibility and litigation risk are not the same thing, and confusing them is one of the more costly mistakes an employer can make.
Even sound termination decisions get challenged. The process of defending those challenges costs money, diverts management attention, and creates uncertainty that is difficult to plan around. That is where severance agreements come in. Rather than treating them as a routine administrative step or a goodwill gesture on the way out the door, employers are better served by viewing severance as a strategic tool for managing risk.
What a Severance Agreement Actually Does
A severance agreement is a legally binding contract in which an employer provides compensation or other benefits in exchange for a release of claims and agreement to certain separation terms. In most cases, offering severance is entirely voluntary. No federal law requires it. And signing one is not an admission that anything went wrong.
The value of a severance agreement, from the employer’s perspective, is what it buys: finality. An employee who signs a properly drafted release gives up the right to bring future legal claims arising from the employment relationship. That eliminates a specific, identifiable risk that the employer would otherwise carry indefinitely.
Why Good Decisions Still Get Challenged
The litigation environment has shifted in ways that matter to employers. Courts are placing greater emphasis on the totality of circumstances rather than rigidly applying older legal frameworks. State employment laws continue to expand, especially in areas involving wage payment and separation requirements. And plaintiff-side attorneys have become increasingly strategic in evaluating and pursuing claims.
The practical result is that employers can find themselves in situations where their legal defense is solid, but litigation is still very likely. Employees who have recently engaged in protected activity, such as filing an internal complaint or taking protected leave, are statistically more likely to challenge a termination, regardless of how well documented the underlying decision is. Employees covered by the Family and Medical Leave Act, the Americans with Disabilities Act, or comparable state statutes often present more complex scenarios even when the employer’s conduct was lawful.
In situations like these, having a strong legal position is not the same as having a low-cost outcome.
Asking the Right Question
The instinct in most organizations is to ask whether the termination decision is defensible. That is a legitimate question, but it is often not the most useful one.
A more practical question is this: how likely is this decision to be challenged, and what will it cost to defend?
Defense costs are real and substantial. Responding to a charge filed with the U.S. Equal Employment Opportunity Commission, participating in mediation, managing discovery, and preparing for a hearing or trial all require significant time and expense. When those projected costs are weighed against a reasonable severance offer, the math sometimes points in a direction different from what the legal analysis alone would suggest.
Put another way, it’s important to recognize that the cost of defending a legitimate decision can exceed the cost of resolving it early.
When Severance Makes Sense
Severance is not necessary or advisable in every situation. There are circumstances where it makes clear sense – for example, where the separation involves an employee who engaged in protected activity, where the employee has conditions protected under federal or state law, where documentation is incomplete or inconsistent, or where the employee appears likely to pursue a claim regardless of the merits.
There are also circumstances where severance is less warranted: clearly voluntary resignations, well-documented policy violations, serious misconduct, or separations involving employees with short tenure and limited potential damages. The key is treating severance as a tool to be deployed selectively, based on an honest assessment of the risk profile, rather than as a default step in every separation.
The Role of Process
One factor that employers frequently underestimate is how much the execution of a termination affects litigation risk, separate from the quality of the underlying decision. A well-reasoned termination can become significantly harder to defend if the process was rushed, inconsistent with past practice, or poorly communicated. Highly visible separations, inconsistent security procedures, or a termination method that unnecessarily embarrasses the employee can all increase the likelihood of litigation, regardless of whether the decision itself was sound.
Timing also matters. Coordination between HR, management, and payroll matters. Clear, consistent messaging at the time of separation matters. Each of these factors affects not only the risk of a claim being filed, but also how that claim will be perceived if it ever reaches a mediator or a jury.
Separating Final Pay from Severance
One common area of confusion is the distinction between wages owed and severance offered. These are fundamentally different, and conflating them creates avoidable legal exposure.
Final pay obligations are governed by law and typically include wages, accrued overtime, and, depending on the jurisdiction, accrued paid time off and earned commissions or bonuses. Employers are required to pay these amounts regardless of whether any separation agreement is signed.
Severance is something different: discretionary consideration offered in exchange for a release of claims. Conditioning the payment of final wages on an employee’s willingness to sign a severance agreement can itself generate liability. Employers operating in multiple states should be especially attentive to this issue, as state-specific rules vary considerably.
Thinking About Severance Amounts
There is no universal formula for determining how much to offer. The more useful exercise is to think about how a plaintiff-side attorney is likely to evaluate the offer. In practice, a severance offer tends to fall into one of three categories from the other side’s perspective: enough to resolve the matter, neutral enough to leave the decision to the employee, or low enough that litigation looks more attractive.
Employers benefit from structuring their offer with that reality in mind. Relevant factors include the employee’s tenure, their role, the nature of the claims that could be asserted, and the realistic range of potential damages.
It is worth noting that the severance offer may not be accepted. Employers should therefore evaluate the underlying termination decision carefully before making any offer, because they may still need to defend it.
A Strategic Lens on Separation
Employers handling complex separations, particularly those operating across multiple states, are well-served by approaching each situation as a risk-management decision rather than a purely legal one. That means being honest about the likelihood of litigation, realistic about the cost of defense, attentive to execution as well as substance, and clear about the legal obligations that govern final pay.
When approached that way, severance agreements can be a genuinely useful tool, not just for the employer, but for achieving a separation that works for both sides.
If your organization is managing a difficult separation or wants to develop a more strategic approach to severance, the employment law attorneys at Hoyer Law Group are available to help. Contact us for a confidential evaluation at www.hoyerlawgroup.com/contact/ or call (844) 531-0082.
This blog is for general informational purposes only and does not constitute legal advice. For advice specific to your situation, please consult a qualified attorney.