What is Severance Agreement Drafting?
A severance agreement is a legal contract signed by an employer and employee. It specifies how employees will be compensated when they leave the company.
This agreement should be clear and fair to both parties to smooth the transition of an employee leaving the company. It also prevents disputes that can lead to costly litigation.
Here’s what to know about severance agreements, key terms they include, and how a lawyer can help you draft them for clarity.
What Key Terms are in a Severance Agreement?
A severance agreement usually contains the following key aspects and terms:
- Termination reason. This mentions the reason for the termination and how long parties have to accept the agreement.
- Payment. The agreement should include how much severance pay the employee will receive, which is usually a percentage of their salary. Payment methods, such as if the pay will be made in a large lump sum, must be specified.
- Health insurance and benefits. The agreement must specify if the employer will continue to offer health insurance or other benefits and for how long after contract termination.
- Liability release. This clause mentions that the employee won’t make claims against the company after signing the severance agreement.
- Confidentiality. This is important to include to protect the company’s sensitive information, such as trade secrets.
- Non-compete clause. It’s common for a non-compete to state that the employee won’t work for a competing company for a specified duration of time.
- Non-disparagement. This states that the employee can’t say anything negative or harmful about the company.
- Dispute resolution. To effectively resolve disputes between parties, you should explain what dispute-resolution method will be used. This can include mediation, arbitration, or litigation.
What are Severance Agreement Drafting Tips?
When drafting a severance agreement, there are special considerations to keep the contract legally sound to protect both parties.
Customize the Agreement
Avoid using a generic agreement template. The severance agreement should be tailored to the specific employee and their specific situation. Consider how long they’ve worked for the company and the position they held. This will help you calculate fair payment terms.
Make it Simple
One of the most important contract-drafting tips is to keep it as simple as possible. Use easy-to-understand language and avoid legal jargon or vague wording that can create confusion.
Keep it Legally Compliant
There are state and federal regulations governing severance agreements. You must be mindful of these so that you don’t violate any rules that can cost you legally or financially.
Working with a qualified lawyer experienced in severance contracts can help you to draft a legally-valid and enforceable agreement.
Consider Stock Options
If an employee was offered stock options by their employer, they are entitled to get them when they leave the company. In some cases, employers might offer cash in return for stock options.
Include an Acceptance Deadline
A severance agreement should include enough time for the employee to review and accept its terms. This timeframe can vary, depending on factors such as the employee’s age and state law.
State Employee Obligations
Your severance agreement should mention any ongoing obligations the employee has after the contract comes to an end, such as returning property belonging to the company. This provides clarity and avoids any unfinished business.
How Does a Lawyer Help You with Severance Agreement Drafting?
Hiring a lawyer to help you draft a severance agreement is advisable. It will ensure that the contract is legally valid and transparent. Not only can a lawyer help an employer to draft a professional agreement, but they can also assist employees with a contract review.
Here are some tasks a lawyer will complete.
- They’ll ensure that the agreement protects parties’ legal rights and financial interests.
- They’ll write the agreement so that it’s clear and simple for all parties to understand.
- They’ll gather relevant documents, such as employment contracts and company policies, to ensure that the severance agreement is aligned with them.
- They’ll follow all the correct legal procedures during the termination process.
- They’ll consider state laws when drafting a severance agreement, which is especially important because laws vary quite a bit.
- They’ll consider the tax implications of the severance package and clarify how different compensation types are treated under tax law.
- They’ll ensure that employer promises are reflected in the agreement.
- For employees, a lawyer will assess what you should receive in your severance package, based on your services to the company.
- They’ll assess if terms are fair and can negotiate them on your behalf.
Where to Find a Lawyer for Severance Agreement Drafting
If you need to find and hire a lawyer to draft your severance agreement, you can easily connect with one on an online legal platform.
ContractsCounsel is an online legal marketplace that gives you access to a range of vetted lawyers who have contract-drafting experience.
Asking a lawyer on ContractsCounsel to draft your severance agreement is an easy process you can do from the comfort of your home. Here’s how.
1. Go to the ContractsCounsel marketplace, where you can post your project for free.
2. Include details of what you require so you can connect with the best lawyer.
3. You’ll receive multiple bids from lawyers directly on the platform who can assist you.
4. Once you receive the lawyer bids, you should review the lawyers' profiles. There’s lots of info on the platform to help you choose the best lawyer for your legal requirements, such as their location, client ratings, years of experience, and field of expertise.
5. Connect with a lawyer and hire them to draft your severance agreement.
