General discussion concerning severance and separation agreements from a business owner’s perspective.
One topic I get a lot of questions about is severance and separation agreements.
Generally, severance refers to giving an exiting employee a monetary bonus or settlement above and beyond their regular compensation. A separation agreement usually refers to an agreement wherein the exiting employee promises not to sue, file a regulatory agency complaint, take business or information with them, or compete with their former employer. In return, the employer gives the employee something of value (usually money).
So, a business could give an exiting employee severance without a severance or separation agreement, but usually doesn’t use a separation agreement without awarding some form of severance (i.e., consideration). If this is confusing, the below will hopefully clarify my point.
Recently, a client asked me about a separation agreement for an employee over the age of 40.
Relative to dealing with an employee who’s 40 or older, if the employer is seeking a release of all claims pursuant to the Age Discrimination in Employment Act (ADEA), there’s a 21/7 rule that applies. Under the rule, which is actually contained in Section 201 of the Older Workers Benefit Protection Act, a release of claims under the ADEA is only valid if the employee’s release is “knowing and voluntary.” More specifically, in order to be “knowing and voluntary,” the exiting employee has 21 days to review the agreement, with or without legal counsel, and has an additional seven days in which to revoke their signature (beyond the initial 21 day review period). Other requirements may apply given certain considerations. In short, depending on the nature of the separation agreement, the 40 and older employee might have rights not afforded to younger employees.
Regardless of the exiting employee’s age, a separation or severance agreement that’s intended to release the employer from all known or unknown claims is essentially the employer’s purchase of the employee’s agreement not to sue or file a complaint with a government agency, not to take business or information to a competitor, or sometimes, to not even work for a competitor.
When I’m initially contacted about this type of employment agreement, I ask the client why they think they need such an agreement. More specifically, what are your goals/purposes: to reward an exiting employee for tenure and/or quality of service, to prevent a lawsuit or complaint from being filed, to protect the confidentiality of company secrets and information, to prevent an employee from competing with them, or a combination of the aforementioned?
Businesses often ask:
* Should we offer severance to an exiting employee?
* When should we offer it?
* How much should we offer?
* Are the terms negotiable?
* Should we ask an exiting employee to sign a separation agreement that includes noncompete and confidentiality clauses?
* What about protected class considerations (e.g., race, sex, age, disability, etc.)?
* What will my other employees or competitors think if they find out that an employee signed such an agreement or received severance?
In order to help the employer focus on what issues they need to resolve, a business should analyze whether the exiting employee has been contentious or dropped hints of a lawsuit or complaint, or commented about the competition or competing with the employer. In order to help focus the employer on what issues they need to resolve, a business should analyze whether the exiting employee has been contentious or dropped hints of a lawsuit or complaint, or commented about the competition or competing with the employer. If an employer believes that an employee will sue or complain to a regulatory agency, then a separation or separation agreement should be strongly considered. If a lawsuit, complaint or any other factors of the employee’s exit isn’t a concern, then a severance or even no action might be appropriate.
Keep in mind, that unless there’s a contract or agreement to the contrary, or obligations under the Worker Adjustment Retraining & Notification Act (WARN), severance isn’t necessarily required, and in many instances an employee can just leave.
Clients typically ask whether by offering an employee a severance, separation, or some hybrid agreement, they’re setting a legal precedent within their company or creating a feeling or belief of entitlement to such a benefit among employees. In short it’s not likely that the company will be legally obligated to offer the same to other employees. However, if other employees learn about such agreements, there’s a greater degree of possibility that a sense of entitlement will result. So, when deciding whether to use a separation or severance agreement, a business should consider the impact on employee morale, and to at least some extent consider the legal ramifications of using such an agreement.
One way of reaching a bottom line for these agreements is that an employer should not enter into an agreement with an employee, and have to engage an attorney, unless the employer is reasonably sure that they’ll obtain a benefit from the transaction that they wouldn’t get in the normal course of business. Ultimately, as with most business decisions, whether to utilize an agreement or not is a cost versus benefit analysis.
Consistent with the disclaimer on found on my website, the above is a general discussion–i.e., every specific issue or case leads to its own specific resolution and should be handled accordingly.
As a labor and employment attorney and businessperson, Charles Krugel has represented management in hundreds of negotiations, in-house and 3rd party proceedings. Charles has over 13 years of experience in the field and he has run his own successful management side practice for the past 7 years.
Month: January 2008
Don’t let these stop you from having a business plan for success!
A recent study of 29,000 business startups noted that 26,000 of them failed. Of those failures, 67% had no written business plan. Think that’s a coincidence?
Here’s the top 10 myths Solo Entrepreneurs often have about business plans. Usually, the reasons why they don’t have one. De-bunk the myths, and see how having a business plan for your solo business, can actually be easy and fun–and can jumpstart your success!
1. Myth: I don’t need a business plan–it’s just me!
Starting a business without a plan is like taking a trip in a foreign country without a map. You might have a lot of fun along the way, and meet a lot of friends, but you are likely to end up at a very different place than you originally set out for?and you might have to phone home for funds for your return ticket.
Solo Entrepreneur Reality: Successful Solo Entrepreneurs know that the exercise of creating a business plan, really helps them think through all the critical aspects of running a business, make better business decisions, and get to profitability sooner.
2. Myth: I have to buy business plan software before I can start.
Business plan software comes in many shapes and sizes, and prices. Many are more geared at small and growing businesses with employees.
Solo Entrepreneur Reality: Business plan software can be helpful but it’s not required. Software is more likely to help if you have a more traditional type business, like a restaurant or a typical consulting business.
3. Myth: I need to hire a consultant to write my business plan.
Consultants are an expensive way to have your business plan written.
Solo Entrepreneur Reality: Your business IS you – and you need to be intimately involved with the creation of your business plan. A better strategy, if you think you need professional help, is to hire a coach or mentor – someone who can guide you in what you need to do, not do it for you.
4. Myth: The business plan templates I’ve seen have all these complex-sounding sections to them. I guess I need all those?
The only time you need to follow a specific outline is if you are looking for funding.
Solo Entrepreneur Reality: Your business plan needs to answer ten basic questions – that’s it! Don’t make things more complicated than necessary.
5. Myth: My business plan needs to be perfect before I can start my business.
If you wait for everything to be perfectly detailed, you may never start.
Solo Entrepreneur Reality: If you have at least a first draft that answers those ten basic questions, you are ready to launch your business! Make your business plan a living, evolving document. In the startup stages, review and update your plan every 2-3 months. As you grow and stabilize, you can slow down the review cycle to every 6-12 months. All business plans should be reviewed and updated at least once a year.
6. Myth: I have to do everything I say I’m going to do in my business plan, or I’m a failure.
Many Solo Entrepreneurs never start because of this myth which leaves them feeling that the success of their future business suddenly rides on each stroke of the pen or click of the keyboard!
Solo Entrepreneur Reality: Think of your business plan as a roadmap for a trip. Expect to take some detours for road construction. Be flexible enough to take some exciting, unplanned side trips. And don’t be surprised if instead of visiting Mount Rushmore, you decide to go to Yellowstone, if that turns out to meet your vacation goals better!
7. Myth: A good business plan has a nice cover, is at least 40 pages long, must be typed and double-spaced?
Business plans intended for investors, such as a bank or venture capitalist, must meet certain requirements that such investors expect.
Solo Entrepreneur Reality: As a Solo Entrepreneur, your business plan need only satisfy YOU. It might be scribbled on a napkin, on stickie notes on your wall, or consist of a collage of pictures and captions. It might be all in one document or scattered among several mediums. As long as you know it in your head and heart without having to look at it, and and it is easily accessible to you when you have doubts, that’s all that is necessary.
8. Myth: I don?t need a loan – so I don’t need a business plan.
YOU are the investor in your business – and would you invest in the stock of some company without seeing a prospectus?
Solo Entrepreneur Reality: Seeing your plan in black and white (or color, if you prefer!), can give a whole new view on the financial viability of your business. If ‘doing the numbers’ seems overwhelming, remember you don’t need fancy spreadsheets. Just lay out a budget that shows where all the money is coming from (and going), and have an accountant review it for additional perspective.
9. Myth: My business plan is in my head – that’s good enough.
I don?t know about you, but I sometimes can’t remember what I planned yesterday to do tomorrow, if I don’t write it down!
Solo Entrepreneur Reality: There is a real power in writing down your plans. Some schools of thought advocate that the act of writing a plan down triggers our subconscious to start working on how to manifest that plan. And, of course, it’s a lot easier to remember when you have it in front of you. And a lot easier to share and get feedback from your non-mind reading supporters.
10. Myth: Friends and family are the best sources of feedback and advice on my business plan.
If your brother is an accountant and your best friend is a market research expert, then this might be true.
Solo Entrepreneur Reality: As well meaning as our friends and family can often be, they just aren’t the best way to get honest, objective guidance. Instead, seek out folks that have specific knowledge that will help you, are willing to be candid with you, and that have a genuine interest in helping you succeed. A business coach is one resource to consider!
Celebrity endorsements are a staple in advertising, with more than 20 percent of all ads today featuring a famous face, voice or likeness. Even smaller businesses are using celebrity spokespersons. The reason is simple: Celebrities sell. Consumers pay attention to celebrities because they are attracted to the familiar. But celebrities don’t have to be major national names. Local and regional “celebrities” can also help pitch a marketing message for your small business. Three ways your business can use a celebrity spokesperson are:
1. Advertising: Celebrities can pitch your product via print, television, radio and even online
2. Appearances and events: Celebrities can make personal appearances for your business at events ranging from charity fund-raisers to grand openings.
3. Media opportunities: your spokesperson can speak on your behalf on TV talk shows or at press conferences, trade shows or other media events.
Here’s the 411 on getting some star power:
Define your objectives
Determine what you expect from your partnership with your spokesperson and how to best use their talents. Clarify your needs and expectations from the get-go.
Links and resources: Brooks International and Burns are two agencies that specialize in booking celebrity and sports talent. These talent brokers can help you assess your needs.
Find the right fit
It’s important that the spokesperson you hire is a good match for your product or service.
Links and resources: The Hollywood-Madison Group uses a proprietary database called the “Fame Index” to match businesses with appropriate talent. The Fame Index contains the names of 10,000 stars and uses 250 categories to match talent to businesses and products.
Plan well in advance
When deciding on a celebrity spokesperson for your business, start early. You should plan at least six months out. The bigger the name, the longer the lead time.
Links and resources: Celebrity Focus and The Celebrity Source are two talent agencies that can connect your company with talent and help you navigate the celebrity maze.
Consider the costs
Talent fees and celebrity endorsements run the gamut from a few hundred dollars for a single appearance by a local DJ to far more for a big star.
Links and resources: If you’re looking for major star power, you can go with Hollywood biggies like William Morris or PMK/HBH Public Relations. On a smaller scale, you can contact many local celebrities directly or through their management or their public relations agency.
Make contact
Talent agencies, entertainment marketing firms and even speakers bureaus can put you in touch with potential celebrity spokespeople. Contacting talent can be easier than you might think.
Links and resources: The Screen Actors Guild provides an actor-locator service. If you want a big-name author, call his or her publishing company and ask for the public relations department. A few have their own speakers bureaus: check out the speakers bureau at Harper Collins.
Here are a few other suggestions when hiring spokespersons:
• Don’t be afraid to ask. Maybe that certain superstar is not out of your reach or budget.
• Consider “B-List” stars who may be more available and less expensive.
• Local celebrities or athletes may turn out to be your best bet.
• Make sure you have an “out” clause in case your celebrity gets negative press or is involved in a scandal.
About the Author
Lou Bortone is an award-winning writer and video producer with over 20 years experience in marketing, branding and promotion. As an online video expert, Lou helps entrepreneurs create video for the web at www.TheOnlineVideoGuy.com. In addition, Lou works as a freelance writer and professional ghostwriter, with a ghostwriting site at www.GhostwriteForYou.com and a blog at www.GhostwriteGuru.com.
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New Business Ideas Report 2007
Here is GetEntrepreneurial.com’s new year gift to all readers and subscribers!
This free 20-pages PDF ebook (worth $38), New Business Ideas Report 2007, is brought to you by the business ideas hunting team at our sister-site CoolBusinessIdeas.com. What is this report about? It is an analysis of innovative and never-seen-before business ideas we’ve seen worldwide this year. Clearly, entrepreneurs around the world are often inspired by common underlying consumer trends when they are working to bring their new business ideas to fruition. We hope that you’ll be able to come up with the next big thing after getting to know some of these interesting consumer and business trends behind 2007’s new business ideas.
Some of the case studies included in this free report:
Cell Phone 2.0
The cell phone has evolved from its humble beginnings as a communication tool into a super gadget that offers us many useful services and resources, thanks to enterprising entrepreneurs with brilliant business ideas.
Ultra Luxury
The rich are just getting richer. With millions of dollars to spend, some use their huge riches to support philanthropy efforts, such as Bill Gates who gave away some $29 billion to charities from 2000 onwards. Some just spend their money on whatever they fancy. Entrepreneurs are coming up with new business ideas to entice the luxury-craving uber-rich to throw their money on.
Attention-Grabbing Advertising
Thanks to media saturation, it is now harder to reach your targeted group of consumers through traditional means of advertising and marketing. It’s no longer enough to place ads in TV, radio, print, Internet, etc. You have to look for avenues and places which will surprise your target audience.
New Business Ideas Report 2007 is available for free download here at GetEntrepreneurial.com.
Click here to view your free copy of the “New Business Ideas Report 2007”. To download onto your computer, Right-Click on this link and Save As a file on your computer. PDF file, 1.08MB. Get Adobe Reader here.
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What Is A Solo Entrepreneur?
A Solo Entrepreneur (Solo-E) is a professional who chooses to go into business by themselves (go solo), collaborate with others, grow their business without boundaries and, more than likely, without employees. The Solo Entrepreneur may also be called a free agent, freelancer, solopreneur, self-employed, sole proprietor, personal business or home based business owner (although not all Solo Entrepreneurs are home-based.). Other terms used by government agencies that count and classify solo entrepreneurs (like the U.S. Census Bureau) include: nonemployer business, no-employee business, microbusiness (which usually means less than 5 employees), and SOHO (small office – home office).
Being a Solo Entrepreneur does not mean being isolated or being completely on your own. Solo-Es often collaborate with others and/or build alliances with other Solo-Es according to their business needs. Although many Solo-Es do not have employees, some may have up to five employees to help support their day-to-day business needs or build the business in other ways. Many find creative ways to support themselves, for example, by using virtual assistants.
What Are Typical Solo Entrepreneur Characteristics?
– A desire for personal freedom that affords them an opportunity to make unique lifestyle choices.
– Seeing themselves as entrepreneurs with a vision, a personal drive, and a passion to fulfill their dreams.
– A deep longing to succeed in their chosen area of expertise and a joy for learning.
– Believing in themselves and being passionate about what they do.
– Being committed to their quest to be solo.
– Comfortable using technologies such as the Internet to promote their business, collaborate with others, and learn.
“The thousands of people starting home based businesses confirm my belief that a new breed of person is emerging on Earth. Such a person is of higher value doing self-created work instead of a job thought up by others. This person is both independent and committed to service, highly flexible, constantly learns, and gets better and better every year.” Al Siebert, PhD., author of The Survivor Personality: Why Some People are Stronger, Smarter and More Skillful at Handling Life’s Difficulties…And How You Can be, Too.
Where Do Solo-Es Come From?
Many come from the corporate world, while others enter the world of being a Solo Entrepreneur as they change from a traditional-based small business with employees and management responsibilities to being an independent professional.
In a 1996 study, 66% of all people pushed into being solo (through downsizing or being fired), said they’d now rather be soloists than wage slaves. According to the U.S. Census Bureau, there were over 20 million single-person businesses in the US in 2005 — an increase of 2.7 million in just three years!
What Are The Social Changes Occurring That Are Supporting The Shift Toward Solo Entrepreneurship?
In the paper, The Swedish Solo-Entrepreneur – Extension and Characteristics (http://www.fsf.se/AhusPMkompl_slut.doc.pdf), Eva-Britt Hult and Dick Ramstr’m proposed three factors:
– A general change in attitudes toward individual choices in actions and life direction and away from working in large companies, climbing the corporate ladder in search of more money, and more employees.
– The spread of tools and techniques, including information technology developments, that enable many people to work together on projects, but not be confined to a formal organization.
– The increased volatility of the industrial sector in general, which leads to a quicker change in the fortunes, direction, and size of companies and makes it advantageous for companies to employ Solo Entrepreneurs with the right mix of talents at the right times.
Another more recent white paper written by Dawn Rivers Baker, Editor/Publisher, The MicroEnterprise Journal, addresses the many factors behind this shift, from political to economic to cultural. Read this fascinating, in-depth analysis: “THE MICROBUSINESS WAY OF GROWTH: How microbusinesses substitute operational efficiency for scale, and sacrifice organizational growth for revenue growth.” (http://www.microenterprisejournal.com/download.html)
Other Places To Read About The World of Solo Entrepreneurs:
Trading Places, Inc. magazine, November 1, 2002 (http://www.inc.com/magazine/20021101/24825.html)
What Should I Do With My Life, Fast Company magazine, January 2003 (http://www.fastcompany.com/online/66/mylife.html)
Free Agent Nation: The Future of Working For Yourself, Daniel Pink – Self-Employed Business Ownership Rates in the United States: 1979-2003, Robert W. Fairlie, University of California, Santa Cruz (http://www.sba.gov/advo/research/rs243tot.pdf)
Where Do Solo Entrepreneurs Do Their Work?
A Solo-E’s office may be considered unconventional as compared to an office in a corporate setting. The Solo-E’s office is characterized by low overhead. It may be located in the Solo-E’s home or be a shared office, and it is used as needed. The Solo-E’s conference or meeting room may be the corner coffee shop, a local bookstore, or a client’s office.
Solo-E’s often use other tools and services such as a laptop, mobile telephone, personal digital assistant, and text messaging to support their business mobility needs.
What Drives The Solo Entrepreneur?
Daniel Pink, author of the best-selling book, Free Agent Nation, describes a revolution in how we work and live in the United States. According to Pink, four major factors are driving this new work ethic and propelling professionals to become Solo Entrepreneurs. These factors, which are listed below, are echoed in the 2000 Swedish study referenced above:
Freedom: the ability to exercise one’s will. (Pink; Free Agent Nation, 2001; p. 66) For Solo-Es one of the biggest complaints about their lives as a employees was that they disliked office politics. They felt imprisoned by all the games played in corporations.
By having freedom, Solo-Es determine when they are going to work, with whom they want to work, and where and how they are going to work. They use their freewill to make business decisions. Solo-Es feel liberated and motivated by their new freedom.
Authenticity: People want to be themselves – not wear a “mask” at work to fit into the corporate culture and environment.
Traditional work environments tend to force people to fit into a mold, and individuality often is suppressed. People express discontent with not being able to be themselves at work.
Solo-Es are able to allow their personalities, individuality, creativity, and uniqueness to shine, while being true to themselves and not ha
ving to “be someone else” in front of the boss or their peers.
Accountability: “putting one”s livelihood and reputation directly on the line. (Pink; Free Agent Nation, 2001; p. 73) Solo-Es are on the front line of their businesses. There is no one to hide behind or any coattails to ride on. This means Solo-Es are accountable for everything they do, including their business – marketing, the quality of their work, delivering what they promise to their clients, the success of their business, etc. They accept these business challenges and reap the rewards and lessons learned along the way.
Self-Defined Success: the measures of success are being redefined by Solo-Es.For Solo-Es, money and the promise of a promotion to the next rung on the corporate ladder are no longer motivators or factors in defining what it is to be successful. Solo-Es use a different measuring stick to define their success. Money remains an important factor to many, because they have to pay for their bills – but it typically is not the primary measurement of success. Instead, success is building the business they dreamed of building for years, and following their heart’s desire (or calling)–and that is what they deem success!
Success may also be defined by having the freedom to choose the work they do, the freedom to present their authentic selves in the work they do, the ability to integrate and balance their work with their life, the freedom to grow their business as they deem appropriate, and the list goes on. The criteria for success are self-defined by each Solo-E. In the 2000 Swedish study, one woman said, “My lifestyle is my big profit.”
What Are The Challenges Facing The Solo Entrepreneur?
Solo-Es often have many challenges and demands on their time, self-confidence, finances, and other resources. These challenges include:
– Having a desire to be solo, with no idea of where to start or of what is possible.
– Working through the initial start-up phase and not giving in to the temptation or pressure to go back to a corporate job or other “safe” haven.
– Having skills, products, and/or services that are in demand, but little experience or knowledge of how to package, market, and sell.
– Understanding how to cohesively fit together the relationships and elements that are part of running a business.
– Determining how to create a unique and solid brand for their business that helps position their strengths.
– Having a desire to go solo, but not knowing how to build a support network.
– Developing ongoing personal leadership skills that help them connect in more meaningful ways.
– Finding a way to transition from doing “tasks” to managing and building their business.
– Figuring out they do not have to do everything themselves, and then learning how to find and build the right alliances, as well as initiating collaborative efforts to support their business.
– Recognizing they are not alone as they make the move into the Solo-E market.
– Determining how to embrace their new career move and establish realistic and achievable goals.
In spite of these challenges, Solo Entrepreneurs find that the rewards are worth it! Being a Solo Entrepreneur is not so much a job, as a lifestyle. Solo-Es get to work when they want, doing the work they love, with people they enjoy working with. It’s a fantastic choice – one that we think more individuals will be making in the years to come.