Employers are wise to offer severance agreements to employees who are leaving, whether the circumstances are favorable or not. They provide the ex-employee with some benefits, and you will get legal protection. These contracts should be enforceable if they’re worded correctly and are agreed upon under the right circumstances as a business partnership lawyer can share.
What Is An Employee Severance Agreement?
A severance agreement is a contract between a departing employee and their employer. Usually, the employee agrees not to sue the employer for any reason, disparage it, or release confidential information. The employee receives additional compensation (which is often money, plus the employer will pay their share of medical benefits for a period of time) called a severance package.
The contract won’t be enforceable without giving employees something they wouldn’t be entitled to. Depending on the situation and applicable state law, you may be required to provide pay to a terminated worker, so you would need to offer something above and beyond that as our friends at Focus Law LA can explain.
This “consideration” is needed for a valid contract. In exchange for binding promises, both sides get something of value. The employee would be free to reject the offer, but they wouldn’t get the severance package.
These packages can limit an employee’s legal options, but they can’t foreclose them. If the employee has a dispute about unpaid compensation or possible illegal discrimination, they may be barred from filing lawsuits over these matters, but they can’t be prevented from filing complaints about them with the applicable government agency.
These packages can include the promise not to contest their request for unemployment compensation and the offer of positive job recommendations (either in writing or verbally through a designated contact). Some employers also offer outplacement services to help limit the person’s period of unemployment.
Why Should An Employer Offer A Severance Agreement?
The person may lose their job through no fault of their own. You may want to retain a positive relationship with them because you may re-hire them. Ending an employment situation with goodwill on both sides can benefit your company because of the power of hiring sites and social media. This person may say positive things about you despite their lost job, which can help you maintain your brand and attract job candidates.
A non-disparagement provision can help limit negative, damaging statements about your company. Given the power of the internet and social media, someone researching your company may easily find such remarks.
Probably the biggest benefit of these agreements is, assuming they’re legally enforceable, they may effectively put an end to, if not prevent, legal action against you. It provides some certainty about your potential future liability for employment issues. If the person files a lawsuit against you, an agreement can be the basis of a motion to dismiss. Part of the agreement could be that the employee pays your legal costs if they violate it.
A severance agreement is like an insurance policy. You need to pay something up front, but it may significantly reduce your potential losses in the future. You should consult with your attorney if you plan to offer a severance agreement so they can review it and recommend changes to ensure it’s legal.
