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2 executive contract inclusions to reduce conflict concerning severance pay

Companies operating in California must comply with both state and federal law when it comes to severance pay and other employment agreements. Although the state does not mandate any sort of severance pay, it does require that employers abide by the agreements they make with their workers. All too often, companies negotiate severance agreements with their workers, only to end up embroiled in a dispute about whether that employee will receive severance compensation when they exit the company.

The best way to prevent such conflict typically involves careful negotiation early in the employment relationship. Organizations and executives can add specific terms to their employment contracts to better prevent disputes about severance packages down the road.

Clear terms for reducing or eliminating severance packages

Both companies offering severance pay as a benefit when recruiting talent and the workers accepting jobs need to understand the scenarios in which a worker will lose their right to severance pay or potentially receive only a portion of the full amount. Companies may demand a specific duration of employment or set specific performance metrics the workers must meet. They can also impost limitations on when they will pay severance pay, such as refusing to offer such pay when the company terminates the worker for cause. Contracts that explicitly detail performance expectations and scenarios in which a termination would not result in severance pay will reduce the conflict that results if a company tries to limit what it offers when a worker exits the organization.

Alternative dispute resolution clauses

Going to court to resolve a severance pay disagreement can end up costing an organization quite a bit if the worker prevails. Not only will there be attorney fees and court costs to cover, but disputes can also draw public attention in some cases and could damage and organizations reputation as an employer. Having a clause in the contract that commits both parties to attempting to settle the matter through direct negotiations, mediation or arbitration can be a way to reduce costs and potentially settle the matter more quickly. It can also protect the privacy of both parties.

Considering the possibility of a disagreement about severance pay at the end of someone’s tenure with an organization may lead to more thoughtful inclusions in an initial agreement outlining severance pay obligations.