Employment contracts are among the most important written agreements that businesses establish. Businesses must address an assortment of different critical legal issues, ranging from compensation to performance expectations.
Severance packages are often part of white-collar employment agreements. New employees often request severance to diminish the economic impact of sudden job loss. Companies that offer severance packages typically need to structure their agreements carefully to protect their organizations.
Clarify employee expectations
Unmet expectations can lead to litigation brought by a frustrated professional. It is therefore critical for employers to include very clear terms regarding what severance pay and benefits an individual worker can expect.
Provide a justification to withhold severance
Severance packages protect workers who lose their jobs due to layoffs and restructuring. However, some employees may demand their severance even when losing their jobs due to misconduct or poor performance.
As such, including provisions in a severance agreement that allow the company to withhold or diminish severance pay in certain scenarios is helpful. Many companies include clauses that allow for the reduction or elimination of severance packages when terminating a worker for cause.
Others may include causes that require the worker in the company to reach an agreement at the time of their exit to finalize the severance arrangement. For example, the worker may need to sign a nondisclosure agreement to protect trade secrets and/or the reputation of the organization before they are eligible for the severance package they require.
Partnering with a legal professional to customize executive employment contracts can protect an organization from litigation and unnecessary expenditures. Severance agreements can often become points of contention after a termination if a company does not craft these agreements carefully.
