If you're laying off or firing employees, chances are you're concerned about being sued. After all, an ex-employee is often an unhappy employee. Besides consulting an attorney to make sure your processes for laying off and firing employees are legally sound, it might also be wise to offer each ex-employee a severance agreement.
A severance agreement is essentially a contract that awards an employee compensation if, and when, they sign a document releasing all claims against their employer. In other words, an employer offers an employee payment in return for a release from the possibility of a suit after being terminated.
The law does not mandate that you offer a severance agreement except in a few circumstances. If you've promised a severance agreement either verbally or in writing, or have a history of offering such agreements, you may be required to do so. If you're unsure, consult with an employment attorney, as an ex-employee who feels he is entitled to a severance agreement is more likely to sue.
If you're not required to offer a severance package when laying off and firing employees, you may still want to. For one thing, it can ward off wrongful termination suits and other claims that an ex-employee failed to bring while on the job. It additionally lays out exactly what is expected of you and an ex-employee such that there is no question about parting pay, insurance benefits, or pensions.
In addition to legal protection, think of severance agreements as an ex-employee handbook. If you follow the "rules" it contains, you probably won't get sued.
- Ending the Employer-Employee Relationship (FindLaw)
- Termination: Tools and Resources (FindLaw)
- Employment Contracts and Severance Agreements: The Devil is in the Details (Provided by Quarles & Brady LLP)
- Sample Severance Agreement and General Release (Provided by CyberShop International Inc. and Edward Mufson)