Great Lakes Wire

Most Michigan employers do not provide severance pay, according to the latest Michigan Policies and Practices Survey from ASE. The survey found that 55% of responding employers in the state do not offer severance pay, and among those that do, many give one or two weeks of pay per year of service. More than half of these companies determine the payout at management’s discretion.

ASE reports that it is uncommon for companies to have a formal policy outlining severance for individual separations. Employers may prefer not to publish such policies because they want to use severance as leverage in separation agreements, securing commitments from departing employees such as agreeing not to pursue legal action, refraining from negative remarks about the company, or keeping details of the package confidential. These agreements can also include terms like non-solicitation and non-disclosure.

To secure these additional promises from an employee, employers must provide more than what is already promised under any existing policy. If a severance benefit is guaranteed by policy, further consideration must be offered for new agreements covering additional terms.

"For an enforceable separation agreement, both parties must agree on offer, acceptance, and adequate consideration—meaning something extra must be provided in exchange for waiving certain rights," according to Michael Burns of ASE.

The release agreement should also be entered into knowingly and voluntarily by the employee. It should use clear language so employees understand what they are agreeing to and what rights they are waiving or releasing the employer from. Employees should have enough time to consider the agreement; many agreements allow 21 days for review before requiring a decision and include a seven-day rescission period for Age Discrimination in Employment Act compliance.

Employers with formal policies on individual separations would need to offer additional benefits or money beyond their stated policy if they seek broader releases or other conditions as part of a separation agreement.

Another reason some employers avoid formalizing severance policies is that under Michigan law—the Payment of Wages and Fringe Benefits Act—a written policy could obligate them to pay out benefits even in cases involving misconduct or poor performance unless clear exceptions are included.

Instead, some companies maintain internal guidelines on separations that are available only to management rather than publishing official policies. This approach allows flexibility when negotiating specific releases or terms with departing employees.

Burns advises: "It is always recommended the separation agreement be reviewed by qualified legal counsel."

While having a severance program can help maintain good employee relations and protect a company's reputation—important factors when attracting future talent—it may not be wise for employers to make their benefit schedules public. Keeping this information confidential enables negotiation over terms favorable to the employer.

More information can be found at SBAM’s News & Resources page: https://www.sbam.org/news-resources/.