Termination can be stressful for both employers and employees. Severance packages are an excellent way for employers to reduce tension–with the employee being terminated–and part ways more amicably. These packages are typically offered when an employee is ‘let go’ due to job elimination, being laid off or when both parties come to a mutual agreement to part ways. Severance packages are normally comprised of the following components:
- Wages for accrued vacation time
- Health insurance coverage
- Wages through the termination date
Extending these benefits communicates to the employee that the employer valued their contribution to the company and is trying to make the transition, easier and less financially stressful.
So, what is a severance package agreement and why is it necessary?
Severance package agreements work to ensure the employee being terminated cannot file a wrongful termination lawsuit against the employer, by doing the following:
- Explaining all the responsibilities and rights of both the employer and the employee.
- Confirming the circumstances surrounding an employee’s termination and that the employee agrees with the terms they were let go under.
- Confirming the terms of the severance package and that the employee agrees with them.
- Having both employer and employee sign-off these terms.
What Should Be Included in a Severance Package Agreement?
When creating a severance package agreement, it is important that employers’ structure them in such a way that all terms and conditions are clearly communicated. The following, are sections that employers need to include in their severance package agreements:
Consideration
Consideration is a special financial bonus, given to the employee for the purpose of encouraging them to sign the agreement. Consideration typically takes the form of severance pay; however, if the employee will receive severance pay regardless of whether they sign the severance package agreement, it is no longer seen as consideration.
‘Legal’ consideration must be a financial bonus that the employee will only receive if they sign the severance agreement.
Timelines
The timeline refers to the amount of time the employee has to consider and sign the severance package agreement. As an employer, it is important to comply with all time periods outlined in the agreement.
Overview of Benefits
A key aspect of a severance package agreement is clearly communicating how the benefits of the employee will change, upon termination. The agreement will include a detailed explanation of changes to areas, such as healthcare and retirement.
The overview of benefits also covers the benefits that an employee will receive for signing the severance package agreement, for instance, severance pay or outplacement services.
In this section of the agreement, clarity is essential. Vague or unclear language can cause inaccurate expectations from the employee and, in some instances, even end in a lawsuit against the employer. To ensure all details are outlined clearly, it is recommended that employers receive legal council.
Looking to create a severance package agreement? Talk with our HR advisors today!
At Peninsula Canada, we will assist you in writing a detailed severance package agreement, tailored to your specific situation. Call us today: 1 (833) 247-3652
