In August, global technology giant 3M agreed to pay $3 million to the EEOC to end a nationwide age discrimination law suit.  According to the EEOC, 3M laid off many highly paid older employees to make way for younger leaders.  The EEOC’s investigation uncovered an employee email describing then-CEO Jim McNerney’s “vision for leadership development” as “we should be developing 30 year olds with General Manager potential” and “He wants us to tap into the youth as participants in the leadership development.”

One way to minimize the risks of potential discrimination claims resulting from a layoff is through a severance agreement.  A severance agreement offers a laid-off employee compensation in exchange for a release of claims, thereby allowing the company to avoid the uncertainty of expense associated with litigation.

But managing risk is not the only benefit of a severance agreement.  A severance agreement can also achieve valuable confidentiality and public relations benefits for employers.  More specifically, through a severance agreement, an employer can get contractual rights that it otherwise may not have—including a non-disparagement clause, which prevents the employee from badmouthing the company; a confidentiality clause, which keeps the severance agreement and all negotiations leading up to the agreement confidential; and a non-disclosure provision, which prevents the employee from sharing the company’s confidential information.

Of course, to be effective, a severance agreement must comply with all labor and employment laws, including the Older Workers Benefit Protection Act (OWBPA).  And for an employee to be willing to accept it, the employer has to offer a meaningful amount of compensation.  Finally, the employee has to perceive that if she foregoes severance in favor of pursuing a claim, her claim is not likely to succeed.  Accordingly, the layoff should be so well planned and executed that although the employee may be unhappy with the decision, she ultimately perceives it as a business decision rather than one based on discriminatory animus.

For more tips on planning for layoffs, click here to read The Worst of Times Demands the Best Employment Practices: Top 5 Tips for Layoffs by Emily Frost.