The Human Resource
The Human Resource brings in industry professionals to talk about current HR issues as well as chatting about important HR topics.
The Human Resource
Separation vs. Severance Agreements
Did you realize there are distinct differences between separation agreements and severance agreements? Listen to this weeks episode for the nuisances and pit falls of using the incorrect documents and the legalities of properly formatted language for each.
This question comes up because I literally had several phone calls here in the last couple of weeks about individuals who unfortunately are being faced with having to let some of their employees go. I'm not going to go into the reasons other than unfortunately it is what it is. And each of the companies are looking at where their business is going to be, not only tomorrow, but in six months. One of them looked at me and said, "I don't know that I'm going to be able to recover for probably a year. So these decisions are ones that we don't face all the time." But again, the question was, "Well, Pandy, do I offer a separation agreement? Or am I required to offer a severance agreement?"
Speaker 1:It's interesting. You all know that I've been around forever and I consider myself an old shoe. And years and years ago, we used the terms golden parachutes, we used the terms, an escape clause, a retirement clause. But either way, agreements on how a termination would be handled or how someone would exit the company, and many times with financial considerations, was just a part of doing, you know, a recruitment or going through an employment offer. But today, it's almost like how pensions have kind of gone the way of the past. We just don't hear or see a lot of severance agreements. And so it makes complete sense that people were asking, what should be in a severance agreement? And is it appropriate at this juncture when we're trying to decide who we're going to let go and how we're going to let them go? So let's just, let's break it down. Because if you aren't in this position right now, you very well may be if you're going to stay in management or in HR for the rest of your career.
Speaker 1:A separation agreement, it means this is how we're going to part ways. We're going to do this with your PTO, we're going to do this with your retirement. Do we owe you any additional monies for reimbursements? Does the company owe you anything in regards to any agreements? What is your non-solicitation? What is your non-compete agreement look like? Basically, it's just saying these are our policies, these are our programs, and this is what you now are eligible for, whether it's COBRA or any 401k rollout, this is what you're going to be faced with, and this is what you can take with you. But severance agreements are entirely different. And you've heard me say over and over again severance agreements are legal documents.. Assuring that they are enforceable is the first thing. That should be your number one priority if you're going to think about handing over or administering a severance agreement. Financial stability is one of the key points of a severance agreement. Look, we don't want this person to just go away. We want to give them a soft landing. We want to show our appreciation for the time that they spent with the company, the investments that they've made over the last few years, all that they've given to us. We want them to know, we want them to do well. Severance agreements, they also very clearly define what the employee's rights are. And a good employment or labor law attorney is going to put in there very specific language so the employee knows that they're protected, but the employer themselves know that they'll be protected. Does the employee have the right to file unemployment? Does the employee have the right to reapply for work in the future with the same employer? And on the other hand, the employee will give up their rights to file any kind of a discrimination claim against the company. They're claiming that once this is signed, there's no additional funds owed to them. In fact, employee rights even extend to consideration of getting legal counsel on their part. So a severance agreement even offers them the opportunity, and in many cases it's 21 days. If they're an older employee and there's a number of older employees being laid off at the same time, that 21 days can extend to 45. 45 days to go to an attorney, 45 days to get counsel, to say, is this a good agreement? Is this enforceable? Am I backing myself into a corner? And then they turn it in. Severance agreements should never ever be forced on an employee. And if that's what you're trying to do with a severance agreement, saying, "you know what, let's get their signature on here. I'll give them $5,000, but then I don't want them to say anything about this, and I don't want them to say anything about that, and I just want them to go away." "You know, I don't, I don't care what they think about me." Yeah, you may be going about this entirely wrong. And I would tell any of my clients saying those kind of things, slow down. Let's start over.
Speaker 1:Severance agreements are to reduce legal risks. Absolutely, for you and the employee. But you've got to make sure that they comply with all relevant federal, state, and local laws. And remember, there's no federal law that states you have to provide a severance agreement if you're laying someone off. This is your gift to them. This is your agreement to say, "look, I'm going to give you a soft landing." But you want to make sure that you're drafting a very clear and unambiguous agreement. That's why you again want to make sure that your labor law or legal counsel , very, very well versed in employment and labor law is the one who's going to sit down and write this for you. You want to make sure that your calculations are correct. And you don't need an attorney to do that, but make sure that if you're giving those numbers to the attorney, you've made all the considerations. How much PTO do we owe them if we are bound to pay them out? You know, what is their last pay? Do we have any bonuses or any commissions that will be owed based on any compensation agreement? All those things have to be etched in stone. And the severance agreement will do that for you.
Speaker 1:You also want to give them a copy of any non-compete, non-solicitation agreement that's mentioned in the severance agreement. Let them see where you're coming up with this language. Let them understand they did sign it. So if it's in the severance agreement as it should be, then you're just reminding them of what they signed. And then don't pressure them to sign it right away. Like I said, they should have 21 days, and that's not something that you get to decide. That's what's legally required. 21 to 45 days, depending on the age and the situation of how many people you're laying off at the same time. You know what laws cover that?
Speaker 1:So severance agreements. Are you are you really sure that's what you want to do? The other thing that people come and ask me all the time is, well, "what's reasonable?" "So somebody's been with me for 10 years. Do I give them a week for every year? Do I give eight hours for every year? That's not itched in stone either. Be aware of your state laws, of the residents. I mean, where the employees residing. But I don't think you're going to find, at least I'm not aware of, any law that says you have to give so many weeks or so many, so many hours per year of service, not when it's outside of a CBA, a collective bargaining agreement. You have the right as employers to use discretion on your own. But keep in mind, they will talk. Employees talk, they they compare notes. "Well, I got three weeks' severance. What did you get?" And really, you don't want to make these negotiating agreements. Although they can, an employee can disagree with an agreement and come back and say, Well, you've got three weeks in here, but I really want five. I'm not going to sign it unless you put five in there. That's again a term of employment that we're ending, but they can still negotiate. Absolutely.
Speaker 1:Another point I want you to just be very mindful of is that this doesn't have to be a lump sum cash payment. You want to instruct your attorney on how you want to make those payments. Do you want to keep them on payroll for the five weeks? You can pay, a lump sum to them if you want to lump sum it, that's great. But most employees are going say, "I don't want all those taxes coming out. Let's just keep going as it is so I look like I'm getting just regular paychecks." You can also have 401k contributions discontinued in those last paychecks. If they're going on to Cobra, keep in mind those premiums will be stopped and they will not necessarily be paying premiums because they'll have to pay 100% of the premium if they go on Cobra, and Cobra starts on the day the employment ends. They have 60 days to decide. You might want to put that in the severance agreement.
Speaker 1:But as you can see, I wasn't kidding. This is a lot of information, and you can't afford to miss any of it. So if you're serious about doing a severance agreement versus a separation, make sure you're partnering with somebody who knows what they're doing. And if you don't have somebody, give me a call. Reach out on LinkedIn, tell me again you want to talk about severance agreements. For those who called here recently and asked about them, I'm sorry you're having to go through this. I know you'll work it out and make the best decisions, but keep asking all these great questions. Because that's what we're here for. And that's the human resource.