A severance agreement is an excellent way to mutually end an employee working relationship with the company, in a respectful and final manner. If not written correctly, however, a severance agreement might not be worth the paper it’s written on. In fact, it could lead to more troubles than the company ever anticipated.
What are some of the reasons a severance agreement may be offered?
- Ease an employee’s transition when they are let go.
- Prevent the employee from divulging or using the company’s confidential information.
- Ensure the employee does not talk poorly about the company.
- Enforce a period of time the employee will not compete with the after they leave.
Crafting a sound and enforceable severance agreement takes more time than just coming up with the a few numbers. There are a few questions and hurdles companies must review before offering a severance. For example:
- Is there a difference in what a severance agreement should say for an at-will employee compared to an employee with a contract? There very well could be, depending on the situation.
- How much should the company offer? There is no magical number, but there are several minimum requirements to make sure the offer is enforceable.
Many times, employers that have offered a severance agreement found out the hard way that if the agreement is not structured correctly, the severance agreement is not enforceable and the money ends up as the down payment for the disgruntled employee to pay their attorney to sue you. For example, did you know that:
- You have to provide some employees with notice and even time to revoke the agreement after they sign it, in order for the agreement to be enforceable?
- There may be additional required notices required when offering mass severance agreements during partial or complete shutdowns, including a group reduction-in-force plan?
Drafting severance agreements properly is critical to reserving the right to enforce them if they are violated. Whether you are a small company or large company, there is no one size fits all approach. But with the right planning, a severance agreement can be a very helpful tool in protecting the company’s interest, while providing compensation or a reasonable allowance to ease employees out of the company and hopefully on to a new career or work setting.
Contributed by Clifford L. Hammond, Attorney with Foster Swift Collins & Smith PC.
View the on-demand webinar Navigating Severance Pay with Cliff.