Do you have any reliable source for this? as it's fairly common in the industry. I know lots of things are common that turn out to be illegal, but this one is ripe to be tested time and again, and the fact that it's still being used implies that those challenges failed.

Hardly. Severence is non-statutory (aka optional), and those terms are quid-pro-quo and perfectly fine.

If the employee doesn’t like the terms, they’ll just get the statutory minimum.

It’s pretty rare anyone takes that option though!

You might be right but a lot of this stuff is based on the calculation that most people do not have the assets to wage a lengthy legal battle when they’re newly unemployed. I’ve heard a lot of stories about wildly illegal things which either went completely unchallenged or became moot because the company went busy with no assets.

Just realized, but to late to edit, that I based my original comment on my home country. And that is not the US. Over here, even hardcore PIPs are regularly thrown out by courts as grounds for termination.

Sometimes, or that could be a partial reason as a signal to current and future employees about what management is like.

But NDA is another reason, or even keeping unemployment insurance premiums low by having everyone that accepts severance state that they are voluntarily leaving the company in exchange for the severance.

By voluntarily separating, they cannot collect unemployment benefits from the state, which means the state charged the employer less in unemployment insurance premiums.

Yes. It makes it easier for them to hire down the road. If you know there is a parachute waiting for you, it’s easier to take a risk on joining the company once it starts growing again.

But I suspect it’s mainly as a carrot to sign the NDA/non-compete/whatever else they want you to sign to keep not talk about what happened.

Usually it is advantageous to offer it so that you don't sue them down the road and get more money. A lot of times it is less rewarding to take the first second or third settlement offer than to counter for quadruple what they offer.

Yes, good will sometimes. Other times it may be all about giving someone a very strong incentive to play nice while they find a new gig. Sometimes people basically need it.

These kinds of things are not always about the strict minimum cost actions. In general, it is a better world with some degree of human consideration being part of things.

I am quite sure many of the cases I had involvement in could have been done cheaper. However, I am also quite sure the people involved had what they need to get through to their next gig with few worries too.

That is worth a lot and these days one can never know who may be working for or with who.

Well don’t sign it then. When I had to sign it, I totally agreed with it. I signed the NDA and got my check.

I hope you start a company and are in a position to give severance to fired employees and not make them sign non-competes.

Not generally. There's no federal severance requirement. I think there might be a few states that require some kind of severance pay under some circumstances, but it's at least not common in the US.