Understanding severance agreements

| Jun 21, 2021 | Business Law |

When a business offers a severance agreement to an employee who is leaving the organization, it may outline the financial terms for his or her departure and also address insurance benefits, job assistance and other items.

Businesses may offer severance agreements to departing employees as a goodwill gesture and to recognize an employee for his or her years of service.

In termination situations, severance agreements can benefit employers who want to ensure the employee does not speak negatively about the organization and it may include provisions to prevent the employee from sharing business secrets with competitors.

It may also include a release where the employee agrees not to pursue further compensation or legal action after the employment ends.

Contents of a severance agreement

Often, severance agreements will offer the employee one or two weeks’ pay for every year he or she worked for the organization but the employer can choose to offer more or less. They usually also include pay for accrued vacation time, reimbursement for unpaid business expenses and may also include benefits such as job placement services.

Sometimes, employers choose to pay more when the employee has an economic hardship or where their position warrants a higher amount, such as executives or other upper management.

The agreement may address insurance coverage including health, life and disability income coverage for a certain time period. This may be until the employee finds a new job or a more limited amount of time.

Most businesses also provide the employee with a reasonable amount of time to review the agreement before signing it, however that may also depend on the circumstances of the employee’s departure.

An experienced attorney can help businesses with severance agreements and provide representation if disputes arise.