Voluntary separation programs can be mutually beneficial devices for making workforce adjustments. Employers can use them on their own or as a precursor to an involuntary program. Each program is different, but some common elements appear regularly.

What Is a Voluntary Separation Program?

Generally, I’m talking about any circumstance where an organization provides a group of employees the opportunity to resign voluntarily and obtain specified benefits that they would not otherwise be entitled to receive.

Reasons for Voluntary Separation Programs

There are many reasons why companies decide to implement voluntary separation programs. These are probably the most common:

Reduce Headcount

Whether due to lower business volume, technological advances, or other factors, sometimes companies no longer need as many workers. The result: a reduction in force. The options? Voluntary or involuntary terminations. It’s usually not enough for a company to announce that it needs 10 fewer employees only to discover that 10 people are ready to leave anyway. Instead, they may try to offer some inducement to entice employees to move on.

Reduce Payroll

Although reducing headcount can sometimes be a cost-saving measure, it doesn’t have to be. Some companies may have reason to downsize without spending less on labor costs. Space constraints, for example might make it economical to pay fewer people to do as much or more work.

But often money is a significant factor. And reducing payroll doesn’t have to mean reducing headcount. The focus could be on parting ways with more highly compensated employees. The company may even plan to replace them very soon, but with someone who demands a lower wage or salary.

Reorganize Functions

Neither money nor numbers have to be primary considerations. An organization may simply have the wrong personnel for their business going forward. Voluntary separation programs may coincide with retraining programs, for example. The idea could be to allow those who don’t want to transition to new roles to leave the company with some form of compensation for helping the business progress.

Facilitate Retirements

Companies can’t force employees out because of their age. But there may be ways they can make it easier for an employee to retire voluntarily. Many workers of traditional retirement age who would like to retire cannot afford to do so these days. In some situations it makes sense for their employers to provide an optional retirement program that would provide monetary or other (e.g., health insurance) benefits to allow employees to wrap up their careers on their own terms.

Structuring Voluntary Separation Programs

The ideal first step is to determine the company’s goals. Is it one of the four categories above? A combination of them? Something else?

With goals in mind, the employer can then consider which employees will be eligible to participate in the program. The program shouldn’t discriminate based on any protected characteristic, but not everyone needs to be offered the chance to participate. If the goals correspond to functional or headcount issues, then the company might only offer the program to specific departments or job functions. If costs are a factor, then the offer may extend only to relatively high earners.

The next step is to determine what to offer the employees. Usually, this would include some amount of cash severance pay. Health insurance or other benefit continuation may also be appropriate. Sometimes employers also offer out-placement services, like career counseling or skills training, to individuals who will remain in the workforce rather than retire altogether.

Normally, if the employer will be giving out something of value to employees who choose to leave, they should require the employee to sign a release of claims. Otherwise, despite the “voluntary” nature of the program, employees may turn around and sue the company. They may claim wrongful termination, or the allegations may relate to other aspects of their prior employment. Most employees who choose to participate in a separation program won’t object to signing a release. Those who do were probably going to cause trouble anyway. Then at least their reluctance or refusal to sign sends a valuable signal to the employer.

(Click here more on employee releases.)

Pitfalls to Avoid

Voluntary separation programs often work out well. However, as with everything, there are traps for the unwary. Here are some.

First, some employers use these programs to get younger. This raises potential age discrimination concerns. Merely offering a voluntary program that gives more senior employees the opportunity to resign/retire usually shouldn’t be unlawful. But companies must be careful about their approach. An employer who has been outspoken about getting younger to cut costs, bring on new skill sets, etc., can expect rumblings about age discrimination (if not litigation) if it later terminates the employment of older workers, even if justifiable on factors other than age.

Second, employers should obtain releases only after employment has ended. Sometimes employees accept a voluntary severance package, sign a release, and then continue to work until a later separation date. Then if something transpires between signing the release and the formal separation from employment, the release will not stop the employee from asserting a claim.

Third, organizations must plan for multiple possible outcomes. Sometimes the voluntary program produces the desired workforce changes on its own. Other times, too many, too few, or the wrong employees elect to participate. It may be possible to structure the program to avoid some of these bad outcomes (e.g., by limiting participation to a particular number of employees). But, whatever the approach, the voluntary nature leaves the results largely in the employees’ hands. Thus, employers should plan ahead for the next steps based on different contingencies.

Fourth, business needs can change quickly. And it takes time to design and implement a voluntary separation program. It is often best to keep a tight timeline for the program, so it wraps up before business conditions change significantly.

Final Thoughts

Implementing a voluntary separation program requires considerable planning. For most companies this planning should involve a team who can both provide the necessary background information/skills and keep the program confidential until launch. Team members ideally should include upper management, supervisors, human resources, and legal counsel experienced with group termination programs.