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Definition:

Buyouts are a common method for reducing the number and cost of employees. In buyouts, the employer offers some employees or all employees the opportunity to receive a large severance package in return for leaving their employment. Buyouts range from four weeks pay plus another paid week for every year worked to $150,000 that some auto companies recently paid their union workers to leave. Buyouts can also include benefits such as extended health care insurance, educational assistance, and help with job searching.

Buyout offers are usually made to non-critical staff although offering all employees the buyout is more common during rough economic times. In return for the severance, employees are required to sign a release from liability, an agreement not to sue; a waiver of all claims; or a hold harmless and indemnification agreement. (The release from liability comes with many different names in different organizations.) The bottom line is that the employee agrees not to sue the company in return for the buyout funds.

Buyouts help an employer reduce the need to do employee layoffs when the employer needs to reduce costs in the business. Unfortunately, when too few employees accept the buyout offer, employers are often forced to lay off employees anyway. Sometimes, the employees laid off are people who chose not to accept buyouts. This contingency should be clear when the buyouts are offered.

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