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Should I offer a severance agreement to my employees?

Hubbard Snitchler & Parzianello

As is the case with many other states, Michigan employers are not required to offer severance packages to employees when they terminate them.

One narrow exception would be workers who have an employment contract that spells out their severance pay.

Even if a terminated worker does not have an employment contract, however, there are many reasons why an employer may want to offer a severance package even though they do not have to do so.

For one, a severance agreement can reduce the employer’s risk of facing an employment-related lawsuit at the hands of a terminated worker.

While severance agreements are not guarantees against legal trouble, an employee may agree to give up important legal rights and possible claims in exchange for a generous severance agreement.

On a related point, a severance agreement can protect a business from the possibility that a key employee will reveal valuable business information to a competitor.

Furthermore, in many situations, offering a severance agreement is just good practice. Many employees, for example, have come to expect them whenever a business goes through a round of layoffs.

Well-crafted severance agreements require attention to detail

If a Michigan business chooses to offer a severance agreement, it will want to make sure that it understands the details of business and employment law that might apply.

In order to be effective, severance agreements have to spell out how much an employee will receive in pay and what will happen to an employee’s benefits.

It may also be important to detail what, if anything, an employer will do to help the employee find a new job. Even how the employer will break the news of the employee’s departure could be spelled out in the contract.

On the flip side, employers should also make sure that the former employee’s responsibilities, such as continued confidentiality, are clear.

The contract should also list the rights an employee is giving up in exchange for the agreement. The employer may wish to clarify that the severance agreement is in lieu of government unemployment compensation.

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