Many employers hesitate to offer a severance agreement when terminating an employee — they think it’s an additional cost or it opens them up to legal issues. While they aren’t appropriate in every situation and it should be discussed with your employment lawyer, they are excellent tools in many situations — depending upon the length of employment and occasionally other factors. It truly is a case-by-case decision, but before we get into the reasons why severance agreements should be utilized and presented, let’s make sure everyone understands what a severance is.
What is a Severance Agreement?
Also known as a Separation and Release Agreement, a Severance Agreement is a contract that an employer presents to employees they are separating from and it is mutually beneficial in that it gives the employee a compensation package relating to the termination and allows the employer to receive a release of legal claims; it also outlines the rules and guidelines related to the involuntary termination (i.e. confidentiality, no rehire, etc.).
Reason No. 1 for Presenting a Severance
The first (and most obvious) reason is that it gives the employer a bit of confidence in that future legal claims brought by the employee are unlikely.
Reason No. 2 for Presenting a Severance
It may make the termination a bit more amicable in the sense that the employee is gifted with additional compensation to buy them time as they look for their next job.
Reason No. 3 for Presenting a Severance
There is no national or state standard when it comes to determining the compensation package offered — it can be entirely customized based upon the business and facts of the employment relationship.
Reason No. 4 for Presenting a Severance
It allows you one last chance to document expectations to protect trade secrets, instill a non-compete or non-disclosure.
Ready for more?
And for those of you interested in understanding more about severance agreements and some of the important provisions, check out our latest YouTube video.
But that’s not all! You can purchase our lawyer-drafted Separation and Release Agreement template directly from our Go It Alone Shop.
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