I have had a number of clients call me in the last few weeks to discuss severance agreements. I think they are worth their weight in gold for any number of reasons. But, the primary reason is that they bring finality to an employee’s departure.
A severance agreement is an agreement between the employer and the soon to be ex-employee through which the employee waives any and all claims against the employer in exchange for payment. Severance agreements can be used in either voluntary or involuntary departures, but I see them most often with involuntary terminations.
The primary benefit of a severance agreement is that it does bring finality to the employee’s relationship with the employer. A well drafted severance agreement will bar an ex-employee from bringing claims against the employer, such as discrimination or harassment claims. This finality is invaluable given that an employee often times has 300 days in which to file a claim with the EEOC or the state equivalent of the EEOC, and then may bring suit within 90 days of that agency’s determination. A severance agreement can stand in stark contrast to fuzzy memories as to why a particular employee was terminated.
A severance agreement may also provide you an opportunity to shore up non-competition agreements that were either non-existent or never signed during the employee’s employment. Although severance agreements are used less often for this purpose, and generally make the severance agreement much more expensive to the employer, it can provide an opportunity to protect particular employer clients.
If you are considering terminating an employee, I strongly recommend that you consider a severance agreement. If you need help drafting one, please give me a call.