There comes a time when a company needs to let go of an executive or other employee. But doing so runs the risk of a lawsuit for wrongful termination, discrimination, or other claims. Severance agreements are an excellent way to make both the departing employee happy and protect the employer.
Understanding the uses of these agreements, and how to draft them, is key to properly running your company. The New York business attorneys of Rosenbaum & Taylor have you covered.
What Is a Severance Agreement?
Put simply, with a severance agreement, an employee agrees to not do something in exchange for compensation from the employer. Usually, the “something” is to sue the company for some alleged grievance. But the employee may agree to additional terms, such as:
- Non-compete (agrees to not compete with the employer for a certain time or in a certain location)
- Non-solicitation (agrees to not try to solicit clients, customers, or employers to a competitor)
- Non-disparagement (agrees to not speak poorly of the company to others)
- Confidentiality (agrees to not discuss certain matters with third parties)
The employer agrees to provide some form of compensation to the departing employee. All of this, taken together, may be called the departing employee’s “severance package.”
A severance agreement may be necessary if the employer has a contract with the departing employee. Or it could be needed if there are possible allegations the employer violated the employee’s rights. A well-drafted severance agreement settles such matters so the parties can amicably part ways.
What Goes Into a Severance Agreement?
Like any other business contract, severance agreements must be carefully drafted. There are certain protocols that ensure they are written in a way to protect the employer. At a minimum, a severance agreement should include the following terms:
Release of Claims
The departing employee will agree to release any legal claims he or she might have against the company. Another way of saying this: waive the right to sue in connection with the termination of employment. The release should be written to protect the company as well as related entities, like subsidiaries. Not all claims can legally be released.
Compensation for the Employee
The agreement will clarify the nature of the compensation for the departing employee. This means explaining exactly what the employee receives in exchange for the release. The agreement should clearly tie the compensation to the release of claims. It should leave no ambiguity or room for misunderstanding about what the employee receives.
Restrictions Upon the Employee
In addition to waiving legal claims, the employee will agree to certain restrictions. These include the ones mentioned above (e.g. non-compete). These should be clearly written and in accordance with specific rules for each restriction. For example, there are limits on how broad a non-compete agreement can be.
It should be noted that not all departing employees are entitled to severance. Provided other laws are not broken, employees can generally just be let go if the employer wants. Determining whether a severance agreement is necessary depends on the employer’s relationship with the employee. For example, if there’s an employment contract involved, a severance agreement may be needed to terminate the employee.
Does Your Company Need a Severance Agreement? Talk To Us
The contract drafting and business attorneys of Rosenbaum & Taylor can advise your company with respect to severance agreements. There are certain terms to include or exclude in order to protect your rights as an employer. To find out more about these contracts, or to begin drafting one for your business, call us today at .