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Negotiating a severance with your employee

When it comes to letting employees go, some decisions are more difficult than others. Unfortunately, anytime you terminate an employee, you open your company to negative repercussions, including the potential for a lawsuit.

To minimize those consequences, some employers offer severance packages to employees they terminate. While severance packages are not mandatory when you fire a worker, you may find yourself in a situation where offering such a benefit is worth the trouble.

Coming to the bargaining table

Your employment contract may include a clause entitling a worker to a severance. If this is the case, you must abide by the agreement or risk that your employee will sue you for breach of contract. If no such clause exists, you may find yourself in a situation where you are negotiating the terms of a separation agreement. Some common benefits you may consider offering to your employee include the following:

  • The standard rate of pay, typically two weeks' salary for each year of employment
  • Continued health coverage for a period of time
  • Assistance with finding work
  • A letter of recommendation or reference
  • Compensation for unused sick days or vacation time
  • The right to keep certain company property such as a phone or laptop

It is typical for an employee to haggle for more benefits, so you may want to seek advice about finding a fair balance for your opening offer. Of course, none of this comes without a comparable return from your employee. What you are trying to accomplish is protection for your company from negative ramifications, so you may require your employee's signature on any of the following in exchange for the benefits you offer:

  • A waiver releasing your company from paying unemployment benefits
  • Surrender of the right to sue for wrongful termination
  • A contract preventing the employee from working for your competitors for a specific length of time or from starting a competing business
  • An agreement that your employee will not take customers from you or attempt to persuade other employees to leave
  • Agreements binding the employee to nondisclosure of company secrets, the circumstances of the termination or the terms of the severance

Weighing the cost of a severance with the potential damage a disgruntled employee can do is an important part of the process. Seeking advice from a California attorney is one way to proactively address these issues. An attorney can also assist you in drafting a severance agreement using clear language that has a better chance of holding up during a legal dispute.

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