Q. The GOP debate last night really inspired me. I think it’s time to shut-down my small, local business and go into politics. If The Donald can do it, anyone can, right?? So, next week, I am going to shut my business doors and let each of my five employees know, “you’re fired.” To make their lives a little easier, I would like to offer them some severance pay, say $5,000.00 each. Any advice??
A. Yes, follow the Donald’s advice and don’t give your money away for free. It’s understandable that you want to help your employees, but you also need to ensure that they don’t file a lawsuit. Accordingly, in return for your company’s money, you will also want to require that the employee sign a severance agreement with a full settlement and release. This agreement will waive most employment related claims that an employee may have. The most notable claims that a severance agreement cannot cover are workers’ compensation claims and claims that the employer did not pay all wages during the employee’s time of employment. In addition, in order to avoid a discrimination claim, the best type of offer would be a standing offer made to all your employees with no pressure that specific employees take the money and leave. That makes sense because your company would want to avoid any claim that you are only targeting a certain type of protected employees, such as employees over forty years old.
Severance agreements with a settlement and release are rarely a bad idea. Although, as noted above, they don’t protect your company against all claims. However, if the employee signs the agreement, you can rest assured that you are protected against the large majority of employee-related claims.
There are some other issues with a business closure (i.e. the WARN Act and California Labor Code section 1400 et seq.) that may require you to provide a 60 day notice of the closure of your business to all employees. However, those requirements are only for larger companies that employ 75 or more employees and are terminating 50 or more employees within 30 days.
Good luck with politics. If last night was any sign of what the future holds, we are in for a big showdown in the upcoming election year. Let’s just hope whoever is elected makes progress helping businesses . . . ’til then, we are here to answer your questions.
This Legal Update / Bulletin is for educational purposes only as well as to give you general information and a general understanding of the law, not to provide specific legal advice. The hypothetical question is posed to illustrate a point and does not contemplate all potential legal considerations This update should not be used as a substitute for competent legal advice from a licensed professional attorney in your state.