A Parting Gift: Severance Pay & Legal Tips

Severance packages are an attempt on the employer’s behalf to soften the blow of a layoff or termination, and also a protection against future litigation. According to @LegalHero in their recent post on this topic, the idea of a severance package may be written in to an employee’s contract or employment agreement. However, in states where at-will employment is in effect (such as California where Peoplescape is headquartered), a severance package can be offered as a nice parting gift to the employee and gives the employer a sense of security against future lawsuits. Before implementing and using severance packages in your organization, there are a few things to consider.

1. Include a clause in the severance package that waives the employee’s right to sue the employer, and ALSO protects the employer against disparaging remarks made by the employee against the employer moving forward.

2. Make sure you note the employer property in the employee’s possession and stipulate the means and timeline by which the employee is to return those items. I.e. company car, company cell phone, etc.

3. Clear statement regarding maintaining confidentiality not only of the severance agreement itself, but also any confidentiality regarding the employer, non-compete agreements, client lists, etc.

4. Include an agreement on the employee’s behalf to cooperate in any future lawsuits on the employer’s behalf. It’s nice to know you have a friend out there should any sticky situations arise!

5. An agreement acknowledging that the employee will not solicit the employer’s current clients for a certain time frame (one year is typical).

As with all things human resources related, there are pro’s and con’s to severance agreements. In situations where the employer does want to keep company information confidential, a severance package may be a nice parting gift for outgoing employees depending on the circumstances of each individual’s termination. But, it is also important to weigh the benefits and risks of implementing this type of policy. As always, we suggest consulting with your employment lawyer or a human resources labor law expert before going forward.