Is handing out severance agreements necessary?

Letting go of employees is difficult. Knowing how you should handle it can certainly be a challenge. Many business owners in New Jersey and elsewhere may not be sure if handing out severance agreements is a requirement or when it is appropriate.

A severance agreement is basically a compensation package given to an employee when a company lets him or her go. Severance agreements are not a requirement for every termination. For example, it is not necessary when firing an at-will employee. It is generally necessary when firing an employee under contract, in exchange for the employee waiving his or her rights to sue or for post-employment control.

To offer or not to offer...

Companies typically offer severance agreements on a case-by-case basis. Not every employee should get one. In order to determine who should receive one, you will need to look at:

  • The employee's role in your company
  • His or her duties
  • The reason for termination
  • If the employee is a protected class according to discrimination law

If a company utilizes a severance agreement, what it offers should be appropriate for the employee's position. An agreement for a supervisor would be much different than a compensation package offered to a CEO or member of upper management.

Severance agreement goal

The goal of a severance agreement is to completely sever the employee/employer relationship. If properly drafted, the employee and employer should not have any need to conduct business with each other again. Properly drafted are the key words here.

The wording of severance agreements matter. If the wording is not just so, with provisions accurately spelled out, or if any aspect of the contract is misleading or overly broad, it may be unenforceable. This could leave you and your business open to lawsuits. Obviously, litigation is something you want to avoid if you can.

For your consideration

It can be tempting to go online and download a standardized severance agreement form, but here's the deal. Federal laws regarding severance agreements change all the time. You do not want to bet the future of your company on a standard form. If you are in need of severance agreements, having experienced legal counsel on your side who is up to date on current laws and understands how to word these documents will end up saving you time and money in the long run.

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Ayesha K. Hamilton
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