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The Gavel

March, 2014
Volume 2


                                                                                       Dianna Caley


Many employers routinely offer severance payments to employees.  Perhaps you have wondered why an employer who is laying off employees with the obvious intent of saving money would then turn around and offer a severance payment?  The chief reason is as an incentive to have that employee sign a severance agreement.  It also provides consideration for that severance agreement and a good severance agreement can protect you in multiple ways.
  1. Protection Against Litigation – When employers layoff or terminate employees there is always a risk that the departing employee may turn around and sue their former employer for wrongful termination.  A good severance agreement will include a release of claims in which the employee agrees not to bring any legal claims against their employer.  Employment suits are time intensive and expensive and avoiding this type of litigation is a substantial benefit.
  2. Non-Disparagement – A good severance agreement would include a provision in which the employee agrees not to make negative references or publish negative information about their former employer.  In the age of social media, reputations can be made or destroyed in a few days and insurance that former employees won’t be out there trashing your company’s reputation is also a significant value.
  3. Protection of Proprietary Information – Every company has information that it does not want its competitors to learn.  It may be customer lists, pricing structures, manufacturing methods or a host of other types of information.  A good severance agreement will include a provision in which the employee agrees to keep all this information confidential.
  4. Non-Compete Agreements – If the employee did not sign a non-compete agreement at the time of hire, this is a good time to negotiate this so  the employee does not leave and go to work for one of your direct competitors.
  5. Future Cooperation – It is always possible that after the employee leaves you may become involved in a lawsuit or some other problem in which you will have to rely on the knowledge and cooperation of your former employee.  A severance agreement should include a provision in which the employee agrees to cooperate and give his full assistance should anything like this happen.
With a severance agreement, like most business contracts, it is important to have a lawyer draft or at least review the agreement prior to using it.This will insure that the agreement is enforceable in your state and that you have the full protection that the agreement can offer you.

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