Severance Package: HR Guide to Building Severance Agreements 2024

Layoffs can be an unfortunate part of business. When employment ends, a severance agreement can offer a smooth transition for the company and its departing employees.

A severance agreement is a legal contract signed by the employer and employee when employment ends. It outlines the terms of the separation, including severance pay, benefits continuation, like COBRA for health insurance, and any other agreed-upon terms.

Why are severance agreements so important?

For employers, they can help reduce the risk of legal issues like wrongful termination lawsuits. For employees, they provide financial support (in the form of severance pay) during the job search and can include valuable resources like outplacement services.

Clear, well-crafted severance agreements are key to protecting both sides and avoiding disagreements down the road. With the continued trend of mass layoffs in 2024, understanding the ins and outs of severance packages is more important than ever for human resource management.

In this article, we’ll review everything you need to know about severance packages in 2024 and how Mosey can help you with corporate compliance.

What Is Severance Pay?

Severance pay is a lump sum payment or series of payments your company gives you after your employment ends. Think of it like a financial cushion to help you while looking for a new job.

How much you get in severance payments depends on a few things. Your company’s policy is a big factor. For instance, they might offer certain weeks of pay for each year of service. Your position and how long you’ve been with the company can also affect your amount of severance pay.

Keep in mind that there’s no federal law saying companies must provide severance benefits. It’s up to each state and company to decide their own rules, so don’t hesitate to ask about your company’s specific policy.

Benefits Continuation

Your paycheck isn’t the only thing to consider if you experience job loss. What happens to your insurance benefits? That’s where COBRA comes in. COBRA is a federal law that lets you keep your company health insurance for a certain amount of time after your job ends, usually 18 months. However, you’ll be responsible for paying the premiums yourself.

Your company might also let you extend other benefits, like life insurance or disability coverage. These benefits could be valuable resources during your transition, so it’s worth checking your employee handbook or asking HR to see what options are available to you.

Release of Claims

Severance agreements usually include a release of claims. This legal term means you agree not to sue your former employer for situations like wrongful termination in exchange for the severance package.

It’s a trade-off: You get the financial security of severance pay, and your employer gets peace of mind knowing you won’t pursue legal action.

It’s crucial to read this section of your severance package carefully and understand what you’re agreeing to. The language should be clear and straightforward, and you should receive something of value in return for signing the release. Don’t hesitate to ask for clarification or legal advice if you have any questions.

Additional Clauses

Severance agreements often have other clauses that you should be aware of. These can include:

Non Disparagement: You agree not to say negative things about your former employer publicly.
Non Solicitation: You agree not to try to hire away your former coworkers.
Confidentiality: You agree to keep certain company information confidential, even after you’ve left.

Another common clause is a non-compete clause. It means you can’t work for a competitor for a specified amount of time. However, the rules around these agreements vary from state to state, so it’s important to understand the laws in your area.

Remember, your severance agreement is a legal document, so it’s vital that you read it carefully and understand all the terms before you sign it. It’s your right to understand what you’re agreeing to.

What Are Other Legal Considerations for Severance Packages?

Now, let’s explore the legal side a little more. This section is essential for protecting your company and the people who are moving on.

The Age Discrimination in Employment Act (ADEA)

If you’re offering severance to employees 40 or older, the Age Discrimination in Employment Act (ADEA) has some rules you must follow.

First, you must give these employees enough time (usually 21 days) to consider the agreement and seek legal advice if they want it. You must also ensure the agreement clearly explains their rights under the ADEA. This step is important because the ADEA aims to protect older workers from discrimination, and severance agreements are no exception.

The Older Workers Benefit Protection Act (OWBPA)

This act goes even further in protecting older workers. It builds upon the ADEA and provides additional safeguards. For example, if you’re laying off a group of employees, you must give older workers a list of everyone affected, including their ages and job titles. This transparency makes sure that older employees aren’t being targeted unfairly.

State Laws

State laws regarding severance and termination can vary widely. Like a cross-country road trip, the rules of the road change from state to state.

Some states require severance agreements to be in writing, while others have specific regulations regarding final paychecks and unused PTO.

You should be familiar with the specific laws in the states where your employees work to avoid legal pitfalls later on.

Legal Counsel

Employment law isn’t always a walk in the park. It can be complex and confusing, and the last thing you want is to end up in a legal mess. To ensure your severance agreements are rock-solid and protect everyone involved, it’s wise to get advice from an employment lawyer.

They’ll act as your legal guide, directing you through the maze of federal and state laws so you can create fair and legally sound agreements.

How To Build Severance Agreements

Next, let’s discuss some best practices for creating severance agreements that work for everyone.

Write in Plain Language

Severance agreements don’t need to be filled with confusing legal jargon. Use simple, everyday language that your employees can easily understand. Remember, the goal is for both parties to be on the same page about the terms of the agreement.

No Two Employees Are Alike

Don’t use a cookie-cutter approach when creating severance agreements. Each employee’s situation is different. Consider their position, how long they’ve worked for you, and any unique circumstances surrounding their departure. A personalized agreement shows that you value your employees and want to treat them fairly.

Negotiate Within Reason

While you want to be fair, you must also protect your company’s interests. Severance agreements aren’t set in stone. You can negotiate the terms with your employee but stay within reasonable limits based on your company’s policies and the employee’s circumstances.

Offer Outplacement Service

Losing a job is tough. Consider offering outplacement services to help your departing employees land on their feet. These services can help them with resume writing, job searching, and interviewing skills. It’s a great way to show your support and goodwill even as their employment ends.

Think Beyond the Paycheck

Severance packages aren’t just about money. Consider other forms of compensation or support that might be valuable to your employees, such as extended insurance coverage, stock options, or unused vacation time payout.

Review Your Policies Regularly

Employment laws and best practices can change over time. Review your company’s severance policies regularly and update them as needed to stay compliant and competitive.

By following these tips, you can create severance agreements that are clear, fair, and beneficial to both your company and former employees.

When Are Severance Agreements Not Needed?

Severance agreements are a common part of employment separations, but sometimes they’re unnecessary. Let’s talk about those special circumstances.

“For Cause” Termination

If an employee is fired “for cause,” that means they did something seriously wrong, like violating company policy or breaking the law. In this case, severance pay isn’t usually offered. This is because the employee’s actions led to their termination, not a company decision.

Gross Misconduct

Gross misconduct is similar to “for cause” termination. It means the terminated employee acted in a way that seriously harmed the company, like stealing or committing fraud. In these situations, the company may not be obligated to provide severance.

Additional Situations

There might be other cases where severance isn’t required. For instance, if an employee is still within their probationary period or their employment contract explicitly states that severance won’t be provided in certain circumstances.

Unemployment Benefits

Even if employees don’t receive severance, they may still be eligible for unemployment benefits. These benefits are determined by state law and depend on the reason for termination and the employee’s work history.

It’s important to remember that these are general guidelines. The specific details of when severance is or isn’t required can vary depending on state laws, company policies, and the individual employment contract. Consulting with a legal professional is always a good idea if you’re unsure whether severance is needed in a particular situation.

How Can Mosey Help?

Dealing with severance paperwork by hand can be a real drag. It takes time, is prone to errors, and is beholden to different regulations by state. Thankfully, there’s a way to manage the compliance tasks of your HR team — a better way. Automating your compliance and employee handbook process with Mosey can save you time and stress.

Mosey is designed to alert you when payroll changes incur new requirements at the state or local level, automate certain tasks, and track upcoming legislation or due dates for your business. It takes care of the fine details, double-checking that you’re following all the rules, and even nudging you when it’s time to file paperwork with the government. It frees your HR team up to focus on supporting your employees during challenging times.

Automating compliance isn’t just about efficiency. It’s about making a difficult situation less painful for everyone.

Make Sure You’re Compliant With Mosey

Severance agreements are a vital part of doing right by your employees. A well-crafted severance package is like a safety net for workers moving on, ensuring a soft landing during a tough transition. And for your company, it’s a way to protect yourself from legal headaches later.

Don’t wait until the last minute to build a severance agreement. Be proactive and have a plan in place. This way, you can be sure you’re treating your employees fairly, covering all the important details, and avoiding legal surprises.

If you want to streamline your HR processes and ensure everything is done right, consider Mosey. Our compliance management platform can handle all the nitty-gritty details, freeing you up to focus on what matters: providing for your employees.

Schedule a demo with Mosey today to learn more about our service and how it works. We can simplify your manual workload and help you create a positive experience for your departing employees.

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