How do you write a legal severance agreement?

On Behalf of | Jan 7, 2022 | Severance Agreements

After a lot of thinking, you decided the most favorable option is to terminate a few of your employees. To ease the transition, you want to offer workers severance agreements. What belongs on a legal agreement?

The Blueprint explains what small business owners should include in their severance agreements. Learn how to do right by your employees and the law.

Parties

Take your time while adding parties to the document. Rather than basic language, cover your legal bases by using language and definitions specific to your company.

Terms and dates

Terms to include on the agreement include the termination date, when the agreement “activates,” the consideration period and the terms of separation.

Final pay

You may want to cash out an employee’s benefits or pay for unused leave. If so, include a section in the agreement that notes the benefits you owe when the employee departs and the extra compensation you want to provide. Other than including how much you want to pay your worker, note how you want to make payments. This is also the section of the document where it makes sense to break down how and when you plan to discontinue health coverage and other benefits.

Severance benefits and pay

Other than final pay, explain how you provide the employee with severance benefits and pay. You may want to base weeks of severance pay on how many years the person worked for your company. Companies usually make severance payments in lump sums, but a different arrangement could suit you and your business model better.

Severance agreements deserve careful time and attention to honor your employees and the law. When you understand the components of such agreements, you draft one with confidence.