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Open Core Ventures Handbook/🌔Terminations/🧾Considerations in involuntary terminations

Considerations in involuntary terminations

It may be necessary to consider termination payments and incentives on a case-by-case basis both at an individual level and in the case of a reduction in force. Parity with severance packages for other employees is not necessarily a consideration given differing legal requirements.
While legal requirements must be given to employees, adjustments to the recommended amounts by the local employer of record would require negotiation with the company and the employer of record given their liability in a termination agreement.
 

Separation and Termination Agreements

Mutual Termination Agreements

Mutual Termination Agreements may outline legally and contractually required separation incentives, include additional incentives recommended by the employer of record to reduce any potential liability and be fair to employees, and may include additional payments or other resources. These agreements are prepared by the employer of record.

Release of Claims

⚠️ For considerations given beyond the company’s legal and contractual obligations, companies must obtain a release of claims (or waiver) from the individual. This is to protect the company from future wrongful termination lawsuits.
The release should be drafted by the legal team or provided by the company’s PEO to ensure compliance with local employment regulations as part of a Mutual Termination Agreement or Separation Agreement.
This applies to both employees and contractors (if additional considerations are provided to contractors under a Consultant Termination and Release).

Accrued PTO

In certain countries, employers may be required to pay out accrued paid time off (PTO) to employees upon termination. The specific requirements can vary depending on the country and the terms of the employee's contract. It is important for companies to consult with their legal team or EOR to understand the specific requirements in each country where they have employees.

Notice Periods

Notice periods may at times be required when employment is not at will. The amount of notice legally required by a country can vary depending on factors such as the employee's length of service, job role, and the terms of their employment contract.
In the event of an involuntary termination, the employer may choose to pay the employee in lieu of notice. This means that the employee will receive a lump sum payment equal to their salary for the notice period they would have worked.
Founders should consult with the company’s PEO to determine any required and recommended notice periods or payments associated with termination.
Timing is also an important consideration when it comes to notice periods and terminations. Some countries may set a notice date at the beginning of the next month. The employer of record may also not consider a notice period to have begun until an MTA has been signed.

Severance

Severance for involuntary terminations is evaluated case by case. There may be severance requirements of the local jurisdiction of the employee. Any severance payments to employees should meet minimum statutory requirements.
Supplemental severance may potentially be offered to ensure employees are treated with respect and dignity during involuntary termination but should always take into consideration the company’s financial position, legal requirements, and other factors.

Tenure

How long an employee has been with a company may impact the legal, recommended, and potential supplemental termination package that a company is willing to offer an employee.
Individuals who have been terminated prior to their start date must receive any legally required payments and may potentially receive supplemental payments due to foregoing other opportunities given the context of other considerations.
Individuals who have delayed a start date and are terminated prior to their employment, should be be compensated proportionally and employers may process their termination in accordance with the minimum legally allowable requirements.

Other resources

In certain situations such as RIFs, companies may, where appropriate, consider providing additional resources as part of the separation package.
Examples include:
  • Career coaching services (X hours) and resume workshop for a month. One provider of such services is HireClub.
  • Option for the employees to purchase their laptops at a nominal value. For this option, companies need to include language around the purchase in the separation agreement (or release of claims).
      • Sample Language:
      Return of Company Property. The Company has agreed to let you keep the laptop issued to you for the purchase price of $X.XX as part of the off-boarding process. However, you are hereby required to return all Company other property and documents, including all Company equipment provided to you by the Company. You are further required to return all “Confidential Information” in your possession, custody, and/or control by [date]. If applicable, please contact [Name / email] to make the arrangements to return any property in your possession.
      Continuing Obligations. You are hereby reminded of your ongoing and continuing obligations with respect to the Company’s Confidential Information as set forth in the “EMPLOYEE CONFIDENTIAL INFORMATION AND INVENTIONS ASSIGNMENT AGREEMENT” that you executed on [date].

Need-based financial assistance from OCV - ON HOLD (MAY NOT BE FEASIBLE TO IMPLEMENT)

OCV is developing a need-based financial assistance program for employees at OCV companies impacted by involuntary turnovers.
Eligibility:
  • Full-time employees at an OCV company for a minimum of X months
  • Termination is not a result of performance issues or for cause
  • Proof of financial hardship [more evaluation criteria to come]
  • No alternative assistance available (for example, local government support)
OCV may be able to provide those eligible up to X as part of the overall separation package. Employees are responsible for any applicable taxes. Please note that in environments of poor macroeconomic performance and outlook, we may not be able to assist everyone that meets eligibility and/or will need to reduce assistance available per person.

Anti-discrimination

US employers with 20 or more employees must comply with the Age Discrimination in Employment Act (ADEA) and the Older Workers Benefit Protection Act (OWBPA) when terminating employees aged 40 or older.
The ADEA requires employers to provide notice to their employees about anti-discrimination rights, while the OWBPA requires employers to obtain a waiver from terminated employees regarding age discrimination claims, and provide them with at least 21 days to consider the release (and 7 days to revoke the agreement after execution).

COBRA

The Consolidated Omnibus Budget Reconciliation Act (COBRA), requires US employers to offer continued health insurance coverage to terminated employees for a certain period of time.

Timing and procedural considerations

Terminations can take time to process. The EOR will terminate employment relationships through a Mutual Termination Agreement (MTA) or a termination notice, which requires their local counsel review.
The WARN Act and OWPBA may impact timing in the US. It is important for employers to check state-specific requirements as well, as some states may have additional notification requirements.
In certain countries, the termination notice needs to be issued in the local language and translation is mandatory. These may require the EOR additional time to draft.
Required notice periods may impact employee timing around separation.
For contractors, only the contractual notice period needs to be satisfied. However, if the company would like to provide additional consideration outside of its contractual obligation, please work with the company’s legal team to obtain a release of claims.

Procedural Considerations

Since answers to most procedural questions are country-specific, we recommend companies to work with their EOR directly in termination planning.
Note that EORs cannot remove an employee from payroll until the MTA is signed. If the employee refuses to sign the agreement, the EOR may proceed with a dismissal case. Dismissal cases tend to be complex where external legal counsel will need to be involved at an additional cost to the company.
Also, EORs are not responsible for employee communications. Once company management confirms that a termination conversation has taken place, the EOR’s local team will send out the MTA for signatures electronically.
All final payments will be made with the next payroll run.