What Should be in Your Severance Pay Agreement?
Many San Diego and California businesses have employees. Occasionally, despite the best wishes and efforts of the business owners, employee layoffs and terminations are necessary. This happens for many reasons. Sales were just not high enough, changes in consumer preferences and buying habits, changes in laws, loss of sources of materials and goods, and other reasons. Many companies try to behave with compassion and morality when terminating employees because of a downturn in business. Often these efforts result in severance payments even though such payments are not required by California law. Often severance is even provided for employees who are fired “for cause.”
We here at San Diego Corporate Law believe that the best legal practice is to have severance agreements that go along with the severance payments, particularly if an employee is fired “for cause.” Consulting with a skilled and experienced business attorney can ensure that your severance agreements protect your business from litigation and other dangers.
San Diego Corporate Law: What Should be in Your Severance Agreements?
Here are the basics that any severance agreement should contain for a worker being terminated, either because of layoffs or for cause:
- Release/waiver of all claims against you, the employer: This avoids litigation by preventing the former worker from suing for any reason whatsoever — this is a binding waiver, since the release/waiver is being made in exchange for the severance payment
- Trade secret confidentiality clause: This is necessary to continue to protect your business trade secrets and other confidential processes, methods, and procedures; as a reminder, all business must make efforts to keep their trade secrets secret, so this is one method of showing that trade secrets are secret
- Severance agreement confidentiality clause: This is important to protect the confidentiality of the agreement itself; some parts might be exempt for tax or unemployment purposes
- Non-Disparagement clause: This is increasingly important in the internet age; you do not what employees posting bad reviews on glassdoor.com and similar sites; the agreement should specify certain prohibited postings with a reasonable time frame (often two years)
San Diego Corporate Law: Release Related to Wages, Vacation Pay, Benefits and Similar
A general release and waiver like the one described above will not be sufficient to waive claims related to wages, overtime, vacation pay, and similar. Under Cal. Lab. Code §§ 201 and §227.3, employers must pay discharged workers all wages due at the time of termination, including accrued unused vacation pay, personal days, and more. A separate check MUST be written for those items and you, the employer, should use your best efforts to correctly calculate those wages, unused vacation days, etc.
However, after you have used your best efforts to pay — via a separate check — all the wages, etc., that are due at the time of termination, you can include in the severance agreement a provision that releases all claims specifically for miscalculation of vacation pay, personal days, overtime, and the like. A well-drafted provision will use release language and then state something to the effect that, some specific dollar amount ($x,xxx.00) of the severance payment is intended to cover any excess that might be due for vacation pay, personal days, overtime, etc., because of any miscalculation. The number selected should exceed any possible miscalculation. Again, this avoids possible litigation and arguments over calculations.
San Diego Corporate Law: Other Useful Provisions
In addition to the foregoing, some other useful provisions include:
- Statement of non-coercion
- Return of property — keys, cellphone or other devices
- No admission of liability clause is typically inserted
- Attorneys’ fee provision for the employer
Contact San Diego Corporate Law
For further information, please contact Michael Leonard, Esq. of San Diego Corporate Law. Mr. Leonard has the experience to help draft and implement severance agreements and all other types of business contracts. Contact Mr. Leonard by email or by calling (858) 483-9200.