Posted on December 4th, 2017
Do you need to offer an employee a severance agreement for the first time?
Here’s everything you need to know about California severance agreements.
The days of long-term loyalty to a single company are over. The median number of years an employee now stays with a company is just 4.6 years. Whether employees leave on their own or they get fired, there is a substantial number of disgruntled ex-employees in America.
Enter: California severance agreements. When employers decide to fire someone, they should do everything they can to get the employee to release the company from binding claims. This is accomplished by putting severance agreements in place.
Though these agreements aren’t required by law, they are certainly helpful to your business. They help you seal confidential company information from leaking through ex-employees. They also help protect you from lawsuits.
These agreements are necessary to facilitate and show there was an amicable end to the working relationship. A severance should be part of your strategy for employee terminations.
Have no fear, the guide to severance is here. Here’s everything you need to know about the agreements.
Why You Need A Severance Agreement
Companies usually offer employees a severance agreement upon termination, unless they were fired for misconduct. These are also known as separation agreements and can work as a sort of insurance policy for you as an employer.
They can help you avoid lawsuits, defamation, the siphoning-off of other employees and also competition. Though you might need to pay for some employee benefits under the contract, you’ll still save money in the long run.
How You Benefit From Having A Severance Agreement
Protection
The benefits of severance agreements for companies are truly endless. It puts a waiver of all legal claims against the employer in place. It also offers a non-disparagement of the employer clause.
A noncompetition form with your company needs to be signed as well. It will help you keep your company clients.
By signing an agreement of this nature the employee will also agree to full cooperation with any lawsuit or investigation involving the employer, which might come in handy someday.
The employee will have to return all of your company materials and agree to the confidentiality terms. However, this doesn’t come for free.
Payout
Severance agreements vary in terms of payout. Some include one or two weeks of salary per year of employment of that specific employee. You may have to extend insurance coverage like dental, general health and disability insurance.
However, you’ll only have to do so for a specific amount of time after the employee has left your company.
Some agreements include uncontested unemployment benefits. They entitle an employee to outplacement services that will help them get a new job. It’s important to carefully consider the employee and how they worked for you during their time of employment when you consider the type of agreement you’d like to offer them.
Complexity
The truth is, terminating an employee can be a difficult process. That’s why these agreements can be so complex. Using an experienced attorney in these matters can make a highly-charged emotional situation must easier.
These agreements are worth the work and money you put into them. They will offer a broad range of protection for you and your employee from potentially angry employees. However, if they aren’t well-prepared they can be completely unenforceable.
Make sure your company is prepared in advance for personnel challenges by having the severance agreement prepped. Protect your company and your position by using strategic clauses in your agreements.
What to Consider When Creating Severance Agreements
It’s important to make sure your severance agreements do not backfire. This can create further discrimination claims. While your agreements will vary greatly depending on the employee and their tenure and position with your company, it’s still important to treat your employees evenhandedly.
There are some requirements that come with these agreements. They can’t mislead or exaggerate. They also have to make certain waivers voluntary.
However, things like the right to participate in an investigation and the ability to file charges with the Equal Employment Opportunities Commission are mandatory.
Age and Benefits
If you are terminating a worker over the age of 40, know that they have 21 days to sign the agreement. They can also change their mind within 7 days, so make sure it’s a good agreement.
Often problems arise with these agreements when an employer withholds previously-earned salaries or benefits from the employee.
You need to be aware and vigilant of anything that can create the appearance of coercion. If any red flags arise because of coercion, your agreement will likely not hold up in court.
Method to the Madness and Taxes
Your agreement with your ex-employee needs to outline the exact tax deductions and payment policy. Furthermore, depending on the payout you’ve decided upon, you need to also outline the nature of how the payment will be delivered.
Perhaps your payout will be a lump sum or maybe it will be a structured payout plan. However you do the payout, it should definitely stipulate the date and delivery method. Furthermore, it should very clearly state when the payments will end.
When a company pays severance for a certain period of time, the contract needs to avoid lawsuits by paying the exact amount, paying on time, and paying in the agreed upon delivery form.
Problems Solved
You might not want to give a problematic employee a great severance agreement. Perhaps you even feel like you are rewarding someone who has treated you poorly or hasn’t worked well for your company.
Even if you feel this way, it’s important to offer severance agreements to ALL of your departing employees. Think of it as an extra insurance policy for yourself and your company. What might sting a little in the short-term will make for long-term protection against that employee.
And remember, you can vary the degrees of payouts and benefits for each employee.
If your employee is being terminated for good reason, then simply dial down the benefits package in the agreement. But the point is to get them to sign it so it has to have enough incentive in it for them.
Agreements of this nature make sense. They are critical for your company to minimize the risk of defamation, future lawsuits, and stolen clientele.
If you need a severance agreement for your business we can write you up a custom one from our Policies and Procedures package.
Hi I’m John Fagerholm, the founding partner of DefendMyBiz. My mission is to defend employers like you from California’s unfair labor laws.
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