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Severance Agreements – Why Have Them and What They Should Contain

By: Donna M. Ballman
Donna M. Ballman, P.A.
10400 Griffin Rd #204
Cooper City, FL 33328

You are firing an employee. They didn’t do anything criminal, anything that actually damaged the company. They were with you five years and just stopped performing. Or didn’t change with the times. Didn’t adjust to a promotion. Missed too much work. You’re having a layoff, making employees redundant. Florida is an at-will state, so there is no question you can fire them for any reason or no reason at all. So why give them severance?

Severance, redundancy, separation pay, whatever the terminology, is pay after termination that is supposed to assure a smooth transition for both the employer and the employee. Unless they committed a crime, if they were with you for awhile, why leave former employees destitute? They are losing a job that was half of their waking life. It’s traumatic. Severance will help tide them over for a little awhile, and smooth their landing a little. It gives them money to survive on while looking for another job.

But severance is also good for the employer. Employees being fired, particularly long-term employees, can cause a huge morale problem. The popular employee who was there ten years, or even one, can cause much disgruntlement. You need to stop their ability to cause unrest. And if they are unemployed for awhile, they have time to think about all the ways the former may have violated the law. They may think of how a person of another race, age, sex, etc. did the same thing two years ago and was given another chance. Or how they had just recently taken some time off for surgery. Or about the legal violation they had brought to their supervisor’s attention right before they were fired.

Some employers give severance without a release. I recommend that employers who are giving severance, which is not a legal requirement unless they have a written severance policy that falls into the category of an employee benefit, always get a release before paying it.

Severance is usually tied to years of service. One week per year to one month per year are typical. However, severance can also be tied to potential liability. For instance, if there is some potential downside to the employer, severance should usually be increased in order to buy peace and that all-important release.

If the employee is over 40, you have to give them at least 21 days to decide whether or not to sign, and give them the right to seek legal advice. That doesn’t mean they can’t sign before the 21 days are up. Then you have to give them 7 days to revoke their acceptance. Don’t pay the severance until after the revocation period expires. Or if you want to pay before then, make sure the severance agreement says that, if they revoke, they have to pay back the severance.

Severance agreements also deal with post-termination issues such as who will be paying the COBRA payments, what happens to pension, return of property, confidentiality, references, and non-disparagement. A disgruntled ex-employee can do much damage to a former employer. If, in exchange for an agreement that you will not trash them to potential employers, you can get an agreement not to disparage your company, this can be worth its weight in gold.

Termination is not the time to engage in personal vendettas. So you dislike this employee. Be glad they are gone. Welcome their attempts to get other employment. If they are employed, they have less opportunity to think about everything you did that they are unhappy with. Don’t try to tank their opportunity to get a new job. It makes good business sense for you to ease their transition.

Another issue you should deal with is any non-competition agreement, trade secrets, and confidential information. You need to have them re-affirm any obligations they had, and make sure they understand what information they are to keep confidential. Don’t overreach. If they were a receptionist, don’t try to keep them from being a receptionist elsewhere. But if they had the secret recipe or your customer list, make sure they can’t sell it to a competitor.

Severance agreements are good for everyone. They assure a peaceful transition. Your employees that stay on will feel better that you won’t leave them hanging out to dry when their time comes. You can sleep better at night knowing you didn’t leave someone destitute. Losing a job is bad enough. It’s the right thing to do to make sure the employee has a soft landing, and it also makes good business sense.

To speak with our skilled Florida employment lawyers, contact our firm, Donna M. Ballman, P.A., to discuss your situation.