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Protecting your company with a severance agreement

One of the most unpleasant roles you have as a business owner or employer is terminating a worker. This may come about because of budget constraints, poor performance or other reasons, and it may be a shock to the employee. It may also stir up feelings of anger or vengeance in an employee who may be tempted to strike back at your company.

Some California employers find the use of a severance agreement may assuage those feelings and protect the business as well as providing some temporary security for the severed employee. No federal or state laws obligate you to offer severance agreements to employees you fire unless your employment contract promises such a package. However, you may find it gives you peace of mind to negotiate such a deal if the circumstances call for it.

What does a typical severance agreement include?

With a severance package, you can trade a negotiable amount of money for your employee's signature in agreement to certain promises. The amount of money is typically between one and four weeks' pay for each year the employee was on your staff. You may include an extension of health care benefits, job search assistance and a letter of recommendation among other benefits. In exchange, you may wish your employee to sign any of the following documents:

  • A non-compete contract postponing the employee's search for work at a competing company
  • An agreement not to share any trade secrets or client information
  • An agreement to refrain from encouraging other employees to leave your company
  • A contract preventing your employee from publicly disparaging your business or revealing details about the termination
  • An agreement to waive any rights to file a wrongful termination lawsuit against you or to seek unemployment benefits

Keeping in mind that the offer of a severance package is the beginning of a negotiation, you may want to hold back and allow for give-and-take in the terms of the agreement.

Offering severance packages either sparingly or generously is up to you. However, it is important to be careful to avoid the appearance of discrimination by withholding this benefit from certain employees. You will also want to state the terms of the agreement in plain language and allow your employee time to review the terms before signing the agreement. Additionally, you would certainly benefit from allowing an attorney to participate in the negotiation process to ensure you are within the law and your rights are protected.

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