Layoffs are common business practices. It does not matter the economic condition, organizations regularly lay off their staff members for various reasons. Businesses must handle layoffs with strategic intent and the right structure in place. A severance agreement is one important strategy that organizations use in laying off their staff members.

Whether you are a startup or an established business, you will have to relieve people of their duties at some point. When you need to do this, you can find the best severance agreement template that will make the process easier for you.

What is a Severance Agreement?

A severance agreement specifies the benefits that an employer plans to offer an employee when the employee is asked to leave the organization. Also known as a severance payment agreement or separation agreement, a severance agreement is a legal document between an employer and an outgoing employee.

It details the specific terms of the termination of the employee. The document is a release or waiver of liability that the employee signs to protect the organization against lawsuits. The agreement often includes compensation and outplacement services as well as other benefits accrued to the employee in exchange for the signature of the employee.

The benefits are usually dependent on the circumstances surrounding the termination of the employment. It depends on whether the employee was terminated with or without a cause or whether they resigned for good reasons or not.

Employees that have risen to the post of executives may be offered additional benefits in the severance agreement, such as shares or stocks in the company. If you are not sure about how to draft this document, you can find a sample severance agreement that you can use online. Ensure you opt for an editable agreement to make it easy to customize it.

Why Do You Need a Severance Agreement?

A severance agreement protects an organization when it is time to let any of its staff members go. It also helps an employee to transition from employment to unemployment by offering them pay and some other benefits that will sustain them until the next job.

If you run a business, you surely will need to have a severance letter template to use when you need to lay off a staff member. The agreement does not have to be complicated. However, the document must outline the terms of the employee’s termination and the benefits accrued to them.

Organizations have always relied on available guidelines from the Equal Employment Opportunity Commission to draft the severance agreement. However, you can find a severance agreement sample that you can use online. There are numerous severance letter templates that you can explore to find the perfect fit for your needs.

You can simply edit the template to suit your purpose. When it comes to drafting a severance letter, you do not necessarily need the service of an attorney. However, it does not hurt to share the document with your lawyer to ensure that no loophole can lead to a lawsuit in the future.

The Typical Format of a Severance Agreement

As stated above, a severance agreement does not have to be complicated. If you do not have an idea on how to draft one, you can find a severance letter sample online that you can use. Usually, a typical severance agreement letter would follow a simple format. Let us look at this briefly.

  • The dates that the severance agreement takes effect. This section also includes the name of the employee and the employer.
  • The agreement should state that both the employee and employer have mutually agreed to terminate the employment. This part should also state that the employer would be under no obligation to pay any amount to the employee due to the termination and the payment offered at the termination will only be made when the agreement has been executed.
  • The specific amount that the employer wants to pay to the employee must be clearly stated in the relevant currency.
  • The terms of the agreement should be highlighted, including the duration in which the employee will continue to enjoy insurance coverage. It should also emphasize that the employee will not in any way instigate any other employee of the company to resign or terminate their contract with the employer.

A good severance agreement should explicitly specify the terms of the termination. You can find a sample severance letter that you can use to draft your agreement.

Tips for Writing a Severance Agreement

Severance agreements are used by organizations to mitigate possible lawsuits. It is also a great way to offer hardworking employees some stability during the work transition. Most employees understand the reasons behind the layout and when treated well, they will accept the termination.

Therefore, one important tip when drafting a severance agreement is to consider the financial agreement. The payment should commensurate with the level of the employee and their investments in the organization. Another tip is to include a non-disclosure clause in the agreement, especially if the outgoing employee occupies a sensitive position.

Protecting the interest of your business is very critical, which is why you should guide against making an employee leave with a grudge. Since it is impossible to have all outgoing employees leave in good spirits, having a non-disclosure clause in the severance agreement is a smart idea.

For many employees, losing their insurance coverage can be very scary, even more than losing their income. Therefore, you should consider offering them insurance support.

To lessen the impact of the termination, you may want to offer the outgoing employees different support resources, including outplacement, mental health counseling, retirement planning, onsite facilities access, and city transportation, among others.

Conclusion

Without a doubt, having a severance agreement in place for outgoing employees is very critical to the health of your business. It protects your organization against possible lawsuits and also gives outgoing employees a soft landing. If you are looking to draft one, you can find severance letter templates from a reputable website.