Potential Corporate Pitfalls: Severance Agreements

The COVID-19 global pandemic remains at the forefront of everyday life.  Although mass vaccinations and changes in business and social practices have helped stem and slow the Coronavirus infection and death rates across much of the world, pockets of outbreaks continue to plague parts of the U.S. with a continued effect on the economy.  The pandemic has turned many American industries upside down at least for a time.  Insurance markets have rapidly hardened in the last 12 months, and retail and entertainment sectors are constantly being forced to reorganize, reschedule, shut-down periodically and even downsize.  This tumultuous landscape is trickling throughout many U.S. companies large and small.

As the pandemic drags on, continued downsizing throughout most industries has been evident as severed employees come to grips with the reality that corporate methodologies and employment landscapes change frequently and sometimes without warning.  In good form and for possible liability relief, conscientious employers will provide comprehensive severance packages at the moment of termination to financially assist the newly unemployed through a difficult transition.

American business severance agreements frequently include, but are not limited to additional income in regularly scheduled terms of months or years, payment for unused vacation time or sick leave, stock options, retirement benefits and limited continuation of life, dental, medical and disability insurances.

Employee benefits are financially imperative to millions of Americans.  Most have become economically dependent upon employer-sponsored insurances that not only serve to protect the covered employee, but may also protect that employee’s immediate family as well.  Often taken for granted by those the programs benefit, the corporate expense of maintaining such employee benefits can be fiscally draining to any company, no matter the size.  But as previously mentioned, dutiful employers commonly extend coverage through a severance arrangement.  And therein lies the problem for the employer.

Group insurance carriers require the immediate removal of a severed employee from an employer-sponsored plan with the possible offer of conversion to individual coverage.  Family or individual life, dental and medical insurance policies are available from any number of insurance companies.  Disability coverage is the exception.  Without future employment contracts in place, traditional disability carriers will not insure an unemployed person no matter how recently that person was terminated.  Since most employers and severance agreement drafters are unaware of this dilemma, they frequently open themselves to great liability risks and threat of lawsuit.

Petersen International is able to assist business owners in mitigating such liabilities and avoiding the unnecessary and potentially expensive need for self-insurance.  The Petersen International Severance Disability Insurance Plan provides a severed employee with long-term monthly and lump sum disability benefits which can be sculpted to best fit the requirements of a formal severance agreement.  It’s quite uncomfortable to contemplate loss of employment or the firing of an employee, especially during these trying times, but the need for corporate downsizing will always be relevant.  Contact us at (800)345-8816 for more information about severance insurance for your business clients.