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How can a severance agreement protect your business?

If the time has come to let an employee go, it is likely a task you are not relishing. Terminating an employee is one of the most difficult and potentially emotional parts of your job, and it may never get easier as time passes. Nevertheless, you realize that, for whatever reason, keeping certain people on the payroll is no longer a viable option for your California company.

There is always a risk involved in firing someone. A disgruntled employee can cause untold damage to your business, taking up time and money with litigation and potentially causing irreparable damage to the reputation of your company. One way to head that off is by offering a severance package.

Do you need assurance?

Federal laws do not require you to offer a severance package to a terminated employee unless your employee's contract dictates such an agreement. In any other case, it is an option you may exercise if you feel the circumstances call for it. Some situations that may suggest you should consider offering a severance agreement include the following:

  • You are concerned that your former employee will seek a job with your direct competitor or start a rival business of his or her own.
  • You want to protect trade secrets and customer information that you fear your employee will take upon termination.
  • You suspect your former employee may try to recruit or rally other employees to leave your business.
  • You fear your employee may damage your company's reputation by publicizing private details of the termination or spreading negative comments about your organization.
  • You want to avoid paying your worker unemployment benefits.
  • You suspect your employee may file a wrongful termination lawsuit.

The severance package you offer can include contracts prohibiting any of the above actions. In return for your employee's signature on these documents, you may offer your employee a payout that equals between one and four weeks pay for each year of service. You may also throw in an extension of health benefits and a positive letter of recommendation. All these terms can be negotiated, so you may seek the advice of your attorney for the best first offer that leaves room for bargaining.

Finding a balance is important. You want to make your offer attractive enough to obtain the signatures you desire, but you don't want to set a precedent that will bankrupt your business. Your attorney can offer advice and be involved in every aspect of the negotiation process. You may find that mediation is the most effective way to reach an agreement that protects your business and satisfies your employee.

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