What's a Severance package?

Severance packages: The definition

A severance package is the severance pay and other benefits that an employee receives when they leave employment.

You may also find terms and conditions in the severance package that cover other issues relating to the termination of employment. Such a document may also sometimes be referred to as a severance agreement, termination agreement or compromise agreement.

The main purpose behind these agreements is that in exchange for the severance pay the employee will waive their right to be able to bring certain claims against the employer in an Employment Tribunal. It is in essence a "full and final settlement" for any potential claims.

There are certain requirements that a severance package needs to fulfil for it to be valid:

  • it must be in writing
  • it must relate to a particular complaint(s) within the parties contemplation
  • the employee must receive independent legal advice
  • the advisor must have in force a professional indemnity policy
  • it must identify the adviser
  • it must state that the conditions relating to severance packages have been satisfied.

In addition, the document will contain details of the severance pay which has been negotiated as well as several other terms governing the end of the employment relationship.

Given all these issues, a severance package should be negotiated and drafted to fit the specific circumstances. 

 

"Oranges and lemons"