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How Do I Draft a Severance Agreement?

Employees come and go, but there are times when some employees deserve some type of payment when they leave. A severance agreement may be in order for some employees. Downsizing and retirement are two major reasons why you might offer a severance package. If you choose to provide severance, it is critical that both you and the employee sign a severance agreement after their termination. A knowledgeable employment law attorney will help you implement a severance agreement that will protect you and provide for the terms that you require.

What is a Severance Agreement?

When you terminate an employee due to downsizing or when an employee retires, you should not simply hand them a severance paycheck without having them sign an agreement. A severance agreement is a contract that is legally binding between the employer and employee. The agreement provides the parameters of the severance package and defines the terms and conditions.

What to Include in a Severance Agreement

A severance agreement is a contract. As such, you will want to make sure it gives employees benefits in exchange for their release of future claims against the company. A severance package should provide a payment that is often calculated using a formula. For example, an employee may receive a portion of regular pay based on the number of years of service. For example, some employers offer a week of severance pay for each year of work completed.

  • Compensation
  • Rules regarding confidentiality
  • Property return
  • Benefits
  • Dates of start and end
  • Release of claims
  • Signatures

It is important to provide detailed information to an employee upon termination and obtain the employee’s signature. You also need to make sure that you require the employee to return all company equipment, information, files, keys, computers, and any other items they may have had in their possession. Give the employee a date that all said property must be returned.

Tips for Drafting a Severance Agreement

A severance agreement is one of the most important contracts between you and a former employee. Every business is unique, so it is best to take the time and effort to ensure that you create an agreement that best suits your needs. Templates are often inadequate at addressing all of your requirements, and you could end up finding out that it does not properly protect your company. A severance agreement can be helpful in attracting employees since it offers benefits once they meet the requirements. Always be sure to have the employee sign the agreement at the end of their employment.

Severance agreements are an important part of every business. It is helpful to seek legal guidance to draft a severance agreement that meets your needs and protects your company. To learn more about severance agreements, contact our skilled legal team at Moen Sheehan Meyer, Ltd. at (608) 784-8310 or online.

Published November 1, 2022
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