Crafting Severance Agreements - A Well-designed Document Can Help Employers Avoid Lawsuits

December 29, 2003

PHR

An unfortunate reality of any business, especially in the current economic climate, is that an employer will, at some time, have to terminate an employee. Employers must carefully navigate this process to avoid the numerous pitfalls that can result from the need to terminate employees. Terminated employees may challenge the legality of their termination, often by contending that they were discriminated against, constructively discharged, or even retaliated against for acting as a "whistle-blower" regarding the practices of the employer. Even if these claims are unfounded, the employer will incur some legal fees responding to any allegations.

Severance agreements are a useful tool that employers may wish to consider when making the decision to terminate an employee. Such agreements are designed to avoid litigation by providing former employees with valuable consideration in exchange for a release of certain claims against the former employer. However, if the severance agreement is drafted incorrectly, it can also be the cause of litigation. Further, employers must take into consideration several federal laws that protect the rights of employees. Failure to do so can render a severance agreement unenforceable despite the value the employer has already given to the former employee.

There are many important factors that must be taken into consideration when negotiating a severance agreement. Provisions for wages, taxes, continued health care, other benefits, assistance in locating future employment, and of course the all important release. These provisions should be specifically detailed in the agreement with regard to amounts being paid to the employee as well as rights and responsibilities. Broad or over-generalized statements should be avoided because they can lead to unintended consequences that may negate the employer's protections under the agreement.

The severance amount can either be paid as salary or in one lump sum payment. The agreement should specify the manner...

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by: Paul H. Rothschild, Esq.

BusinessWest
December 8, 2008

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