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Should you offer an employee a severance package?

At one time, your business might have prospered. However, changes in the economy, lack of demand for your products or services and other issues could jeopardize the future of your business. Due to these factors, the financial circumstances of your business might have changed. As you review your operations, you might need to find ways to cut your costs.

In order to keep your doors open, you may need to lay off some of your employees. As much as it may pain you to do so, you may feel you have no choice. Your employees could be like your family, and you want to help ensure that they are able to support themselves and their families while they look for other employment. In addition, you may avoid litigation from those employees who don't take the news well.

What is a severance agreement?

Also called a severance package, a severance agreement is a binding contract between you and your soon-to-be former employee. In exchange for compensation (usually money), the employee agrees not to sue you for being terminated or other potential employment litigation issues that occurred during the employee's time with your company.

Do I have to provide severance packages?

If you told an employee upon hiring or during employment that you would provide one, then you may be legally obligated to do so. In addition, if you have provided such agreements in the past, that may create an obligation for you to do so now. Otherwise, you may not be required to provide any such agreement.

However, it might be to your advantage to enter into a severance agreement with an employee you must lay off in order to protect your business. The agreement will outline exactly what pay and benefits (think insurance coverage and retirement) that the employee is entitled to upon termination. In addition, if the employee attempts to file a lawsuit against you, you can produce the agreement, and as long as you have met your contractual requirements, the court should dismiss the case.

Help with drafting and executing severance agreements

In addition to consulting with a California employment attorney to determine whether you need to provide severance agreements, he or she could also assist you with the drafting and executing of each one. This helps ensure that you have clearly outlined all of your rights and responsibilities, along with those of your employee or employees.

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