What is a Severance Agreement
*This is a transcript of the Facebook Live video from 5-3-18 Click here to watch the video.
A severance agreement can be known by many names. Sometimes it’s severance, sometimes it’s separation, sometimes it’s a separation agreement and release. Basically what a separation agreement is or a severance agreement is, is an agreement between a company and someone who’s about to become a former employee that tries to resolve any disputes that they may have about their employment and provide some compensation on their way out the door.
There’s no standard severance agreement and there’s no typical way that this is given. Each situation is different, each severance agreement kind of stands on its own, although there’s some circumstances that we” delve into in a minute that may cover a large number of employees at one time. But the company creates a severance agreement and they largely will dictate what the terms of it will be, excuse me, will be. I know that there’s some companies that have long-standing policies or practices about a certain amount of severance per … maybe it’s one week of salary for every year that … of service that an employee has, sometimes you see that. Sometimes they just put what they think is fair depending upon the length and term of service of the employee.
The larger the company typically, the more formalized that particular policy or practice would be. A lot of people ask us, is a severance package separation agreement required by law? The answer is no. A company doesn’t have to offer you any severance, either severance pay or an agreement. Many times they do because what they’re trying to do is get a release from the employee that would release them from any liability either known or unknown at the time of the separation and that way both parties can move on and not look back at the previous relationship.
But many people feel entitled to severance and perhaps on a moral, ethical, or practical level, maybe they’re right. They’ve given a lot of years of service to a particular company and sometimes the termination decision comes out of left field. You don’t know that it’s coming. It may be a reduction in force, it may be a new manager who’s decided that he or she wants to change up their team. There are a lot of reasons why a person could get fired for no reason, no fault of their own and people feel like, well, if that’s going to happen, then I need some money to get me from now until a time I get a new job. Often times that’s what a separation agreement is designed to do and that may be the moral thing to do, it may be the ethical thing to do, but not necessarily the legal thing to do.