What To Include In An Employee Severance Agreement
As an HR Manager working for a major airline during the last economic downturn, I received a lot of on-the-job experience facilitating employee layoffs and reductions in force (RIFs).
It seemed for a while there I was presenting a severance package to an employee on almost a daily basis.
I learned quickly best practices for conducting respectful layoffs. Over the years to come, I also gained experience with layoffs for nonprofits, governments, and small business. The best practices for layoffs and employee severance agreements are the same across industries.
If you are considering a layoff or a RIF, using a severance agreement can be a good way to:
Offer employees a benefit they would not have received if they left your company voluntarily
Mitigate risk of a future employee complaint by requesting the employee sign an agreement
Here are examples of benefits you might consider including with a severance agreement:
Company-paid COBRA premiums for a limited period of time
A tiered lump sum payout by years of service
Payout of sick time that may have otherwise been forfeited upon separation
Outplacement services, i.e. professional career coaching or resume writing to assist the employee with finding a new job
The idea is that the employee receives something that would not normally receive when leaving the organization in return for signing a severance agreement with a release of liability.
A good severance agreement includes:
The employee’s separation date
A review period, including the Older Workers Benefits Protection Act Information (OWBPA) required review period: Allows for employees who are age 40+ to have a 45- day review period and a 7 day revocation period
A statement about your company not taking action to fight a future unemployment claim (although whether or not the employee is ultimately granted unemployment is up to the state)
A description of the severance pay, and any additional benefits the employee will receive by signing the agreement
A clause for bridging seniority if an employee applies for and is hired for another job in your company
Acknowledgement, signature, and release of liability (note- there are some legal limitations to a release of liability, which is why it’s important to have an attorney review your severance agreement.)
Other best practices include:
Giving your employee a well-written layoff letter
Including an FAQ handout with payroll, benefits, and unemployment information and direction on who they can contact should they have questions
Conduct the severance agreement meeting in-person with a third-party present (i.e. HR or a Manager)
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