Is It Mandatory to Offer a Severance Package to an Employee Who Has Been Fired?

Generally, no. Companies do not have to provide a severance package to a terminated employee. Severance is not guaranteed to employees and almost never to contractors. In some circumstances, larger companies have written severance plans, but it is not the norm. Most of our corporate clients do not have a severance plan, and severance is purely discretionary to reduce legal risk and obtain a waiver of claims, or to provide a financial cushion until the employee can find subsequent employment.

In exchange for the severance compensation, the employee waives any and all claims arising out of their employment against the employer. It gives the employer peace of mind regarding the termination and reduces the likelihood of a lawsuit by the employee.

How Do We Protect Confidential Information When An Employee Or Contractor Has Been Fired?

We recommend that all employees sign a nondisclosure agreement which could be a part of a general employment agreement. We advise our corporate clients to have a template employment contract that includes nondisclosure language. It can also have restrictive covenants such as nonservicing of customers and non-poaching of employees clauses, which can further prevent employees and contractors from interacting with customers and employees for a period of time after they are terminated.

Companies can assert their rights under a nondisclosure agreement by having a law firm send a cease and desist letter to the breaching employee or contractor. There are also state statutes that protect companies or individuals; each state has its own trade secrets statute. These statutes generally give the victim or non-breaching party a right to recover attorney’s fees and damages against the breaching party in court.

There is a legal distinction between confidential information and trade secrets. Trade secrets are not just confidential information; they provide you with a unique competitive advantage, and if a competitor got their hands on this information it could ruin your business. A good example is the CocaCola secret formula – it is kept under lock and key, only a limited number of people know it, and if it was made public it would cause Coca-Cola extreme financial and reputational harm.

Another way to protect your company’s confidential information is to make sure you’re limiting access within your organization. Ideally, a company should have policies that govern the handling of its confidential information.

Even if an employee has not signed a non-disclosure agreement, there are some ways you can protect company data. If the employee takes or shares confidential information, they still have a fiduciary duty of loyalty to the employer while they are employed. If the employee left with certain confidential information that’s not their property, then they’re not able to go out and use it at another job. A company could sue the employee for breach of fiduciary duty of loyalty or send the employee a cease and desist letter warning the employee of the potential for a lawsuit if the company is not made whole. The types of claims a company can bring depend on what state the harm occurred in.

In some circumstances, it is appropriate to send the employee’s current employer a letter advising them of the confidential information breach and requesting their assistance to remedy the harm. From a legal standpoint, that employer should not use your company’s confidential information because that creates a high amount of legal risk for them, and it’s illegal. They don’t want to be sued for taking someone else’s confidential information. Thus, you could, with the advice of counsel, get the new employer involved as a potential solution.

For more information on Severance Packages for Terminated Employees In VA, and Protecting Confidential Information when an Employee is Fired, an initial consultation is your next best step. Get the information and legal answers you are seeking by calling (703) 896-7704 or emailing our firm at katie@lipplawfirm.com.