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Important parts of a severance agreement

by | Jan 10, 2019 | Firm News, severance agreements |

Receiving notice of a job termination and packing up and leaving a workplace for the last time provides little time to consider and review a severance package, especially under emotional duress. Some important matters, however, should be carefully considered when reviewing severance agreements.

First, it is important to distinguish between a final paycheck and severance pay. Even without a severance agreement, employers are legally required to pay salary or wages for all time worked until termination along with accrued vacation time, legal deductions, and benefit elections in a final paycheck. Some employees may be eligible for an accrued sick leave or bonus payout.

Employers are not required to offer severance pay. This usually includes pay and benefits that go beyond their last paycheck.

Employers usually offer a severance agreement to provide money and benefits in return for an employee giving up a right, such as filing a lawsuit for discrimination or taking action post-employment that leads to competition. Executives and their employers usually agree on a severance package with pay based on years of service.

Typical agreements include terms on severance and vacation pay, return of property, non-competition, confidentiality, unemployment, and the general release of claims and agreement not to sue. These also include information on the length and premium costs of the COBRA benefits that are offered under federal law.

Financial clauses in a severance agreement usually have the method of severance pay and how it was calculated, as well as the amount of commissions, bonuses, and deferred compensation to be paid. Rights under pension and 401(k) plans, stock options and exercise schedules, unreimbursed business expenses, and loan repayment may be included, too.

Non-competition and confidentiality clauses are important and often difficult to negotiate. It is essential to review geographic restrictions, scope, and the time period of non-compete restrictions. The severance agreement should be compared to any non-competition clauses that were entered at hiring.

Finally, employers may consider other benefits. These include letters of recommendation, removing personal files from the employer’s computer or using company email or voicemail for an extended time. The employer may even agree to couch the reasons for termination in nonprejudicial terms.

Employees need to carefully consider and review these agreements to ensure they are receiving fair and favorable compensation for their service to their employer. An attorney can provide advice with regard to these agreements, assist with negotiating them, and review these agreements to better ensure that one’s best interests are protected as fully as possible under the circumstances at hand.