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What should a severance agreement include?

On Behalf of | Oct 20, 2023 | Employer Law (Employer)

Pennsylvania is an at-will employment state, which means that as an employer, you do not necessarily need a reason to terminate an employee, so long as your reason does not violate laws against discrimination or other restrictions. However, terminating employees is rarely easy and there are some things that may minimize your risk of future problems, such as a wrongful termination lawsuit.

One of these is a severance agreement. A severance agreement is a written document signed by you and an employee being terminated that describes the terms and conditions surrounding the termination. The agreement can help you end your employment relationships professionally and amicably.

Commonly included topics

Key topics that are typically addressed in a severance agreement include:

  • Company property
  • Health insurance
  • Severance pay

The agreement usually contains dates for the return of any company property, such as laptops, phones or other equipment. Your return date should take into consideration how long it will take to return the equipment if the employee is in a different location or state.

Severance pay and health insurance are two topics the employee will likely be most concerned about. You can structure your severance pay terms however work best for you, whether through a lump sum payment or a series of payments over time.

In addition to severance pay, do not forget to include information about how or if you will compensate your employee for any unused leave time.

Your employee has a right to receive continuing health care coverage for up to 18 months through the Consolidated Omnibus Budget Reconciliation Act (COBRA). Make sure your severance agreement specifies this right and contains an end date.

Additionally, your employee will usually have to pay more for a COBRA insurance plan than they paid when working for you. Your agreement need not state any difference in cost, since you might not know it, but a sentence about the potential cost difference could be helpful.

Additional clauses

There are several standard clauses that are also included in severance agreements including a confidentiality clause, non-disparagement clause and non-solicitation clause.

A non-disparagement clause means your employee agrees to not make any negative statements about you or the company while a non-solicitation clause means they agree they will not solicit other employees to quit.

Reviewing and signing

As with any contract you have your employees sign, give the employee enough time to thoroughly read and understand the contract before signing. You should allow them to review it with an attorney if they wish.

A settlement agreement signed by an employee usually means they cannot later claim they were wrongfully terminated.

Your severance agreements should be structured based on your specific business and the circumstances surrounding the employee’s termination. A well-written severance agreement can protect you and your business.