Each new employee hired by an organization is a costly investment. Companies often spend thousands recruiting and training top talent. They may have to offer relocation benefits for competitive positions occupied by highly-educated professionals.
They also have to budget to consistently provide a worker’s wages and cover their benefits package. In some cases, employees may expect employers to continue providing them with benefits and wages even after they no longer work for the company.
Severance packages provide transitional support for workers who suddenly lose their jobs. When should a company negotiate a severance agreement with an employee?
Negotiations often occur during onboarding
The most common time to establish a severance agreement with a worker is when they first accept a position at an organization. It is common practice for companies to address severance as part of the overall employment and compensation negotiation process. There are several benefits derived from addressing severance matters early in an employment relationship.
Workers are less likely to be adversarial if they discuss severance while their job is not at risk. Severance negotiations can quickly become tense if they take place after a worker has already lost their job. Companies that negotiate severance matters as part of the hiring process can include clear provisions in the agreement indicating when the company has the option of limiting benefits or refusing to offer the severance package.
Any termination for cause often prevents a worker from receiving a severance package. Certain circumstances, including poor performance on the job or the company’s financial hardship, may also trigger clauses that allow the company to reduce the severance pay provided or the duration of ongoing benefits.
Particularly in scenarios where companies have agreed to provide severance and want to limit that liability, proper documentation of major employment issues is of the utmost importance. Workers who already know the rules for severance packages are less likely to dispute the decision to deny or limit their severance pay. Employers who create custom, thorough employment contracts have the best protection from common sources of conflict with workers.
Addressing severance packages early in an employment arrangement is often the most favorable solution for a business, but there may be options available during negotiations as part of a worker’s termination. Organizations that have clear agreements about severance compensation can work to avoid costly disputes that could lead to litigation.