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Understanding severance agreements

| Jul 9, 2021 | Employment Law |

When an employee leaves an organization, the employer may offer him or her a severance agreement that lays out the financial terms of their departure.

Severance agreements are not required under the law, but employers may offer them as a goodwill gesture to employees who have been with the organization for a long time. The employer may also offer them in termination situations where the employee signs a release, agreeing not to pursue further compensation or legal action as part of the agreement.

Usually, severance agreements offer the employee one to two weeks of paid salary for every year he or she worked. However, the employer may choose to use a different calculation to determine the amount of severance pay.

Employers may offer more compensation if the employee’s job loss will create an economic hardship for him or her or if the employee is in a management or executive position, for example.

Offering additional benefits

In addition to monetary compensation, the severance agreement may include insurance for the employee for a certain period of time, job placement assistance and other benefits. The job placement assistance may last until the employee finds a new job or for a more limited period of time. They usually also include pay for accrued vacation time and reimbursement for unpaid business expenses.

Most businesses also provide the employee with a reasonable amount of time to review the agreement before signing it, however that may depend on the circumstances of the employee’s departure.

An experienced attorney can help businesses draft and negotiate severance agreements, as well as provide representation for other employment law matters.