Exit package

An exit package is the agreement which may be made between an employer and employee when the employee leaves their job.

What is an exit package?

An exit package is the agreement which may be made between an employer and employee when the employee leaves their job. This usually (but not always) involves the employer paying additional money to the employee – over and above salary owed.

An exit package may be offered by the employer without prompting or, may be negotiated by the employee (or their representative) after discussions with the employer.

There are many reasons why the parties may agree that bringing employment to an end is the best option. Examples may include where a grievance has been brought and has not been resolved satisfactorily, or there has been a change of management and the individual is no longer regarded as a “good fit” in the team.

However, the employee may feel that due to the circumstances they do not just want to resign and walk away. This often occurs where the employee feels they have a legal claim due to the way they have been treated at work, for example if they may have suffered discrimination.

An exit package is generally intended to ensure that the termination of employment goes smoothly for all parties – regardless of the reason why the employee is leaving.

Where there is a potential legal claim against it the employer will usually require the employee to sign a settlement agreement as a condition of giving the exit package. The settlement agreement then protects the employer against future legal claims from the exiting employee.

How to negotiate an exit package

It’s important to understand that there is no obligation on any employer to offer an exit package, an employer cannot be forced to do so. The offer of an exit package and its contents is entirely at the discretion of the employer so they may need to be persuaded. Where an employer thinks that there is no (or a very low) risk of a legal claim from the employee, it may decide that it does not need to offer an exit package.

Using a solicitor to put potential claims in writing to the employer can demonstrate that an employee is serious and that they do have a credible case. Employers generally want to avoid the hassle of a disgruntled employee leaving the business – it is easier staff leave without making a fuss! Therefore, it may decide to offer some sort of package to ensure the individual goes quickly and quietly. Alternatively, the employee may be leaving because of reasons beyond their control such as a restructuring of the business or due to ill health, and the employer wants to assist the employee and “do the right thing by them”.

What should an exit package look like for employees?

A good exit package for an employee will include more than just their basic entitlements (which they could obtain by going to an employment tribunal if they had to), there will be an element of enhancement by the employer. Another way of looking at this might be to regard it as a carrot from the employer to ensure a smooth exit.

However, to start with the employee wants to make sure they are paid everything they are legally entitled to. This will include all salary, bonus, commission and pay-in-lieu of accrued holiday etc. earned up until the termination date. They will also want to ensure that they are paid in respect of their notice entitlement, in accordance with their employment contract (or statutory notice, if longer).

If the employee is leaving because of redundancy the exit package should include a redundancy payment. This should be calculated in accordance with the legal formula. Ideally, the employer would enhance this with an additional amount – but this would be a matter for negotiation.

If the employee has made any allegations, such as in respect of discrimination or harassment, they will be looking for compensation for giving up their claim in the exit package. An employee should always take legal advice as to how much their claim might be worth and how much they should settle for.

An exit package should cover all matters that are relevant to the termination of the employment not only monetary matters. For example:

whether the employee will spend some time on “garden leave”
the contents of any reference
any continuation of medical (or other) insurance benefits
pensions matters
how any share options will be treated (e.g. good leaver or bad leaver?)
any transfer of mobile phone number
arrangements for handing back a company car
any internal/external announcements to be made concerning the employee’s exit
transfer of social media accounts,
arrangements for transition of the employee’s role during the notice period
any arrangements for future assistance to be offered by the employee to the employer
any other practical matters which need to be agreed between the parties.