This is important to know about severance agreements!

Severance agreements are often used as a more flexible alternative to terminating an employee, simplifying the termination process for both parties and removing the risk of litigation. Severance agreements can be a good solution for downsizing and possible dismissal of an employee. There is no obligation to offer or accept a severance agreement.

When can severance agreements be granted?

In a downsizing process, the employer may offer severance agreements to a majority of employees in an early phase of the process. Such severance agreements are not individually customised for each employee. It is also possible to offer individually tailored severance agreements in the final phase of a downsizing process.

In addition, severance agreements can be a good alternative to a possible dismissal of an employee due to circumstances on the part of the employee.

Parachute agreements - what are they?

A parachute agreement is a pre-agreed severance agreement between the employer and the company's senior manager. In order to enter into such an agreement, the parties must agree on the severance pay the company's senior executive will receive in the event of resignation.

It is important to note that it is not permitted to pre-agree severance agreements for anyone other than the company's top manager.

What are the benefits of a severance agreement?

A severance agreement often contains elements of financial compensation for the employee, which can provide security during the period when the employee is looking for a new job.

For the employer, severance agreements can provide a full overview and financial control. The employer will also be assured of not having to go through a long and expensive legal process because the employee believes that there has been an unlawful dismissal.

What should a severance agreement contain?

A severance agreement should regulate all matters relating to the termination of the employment relationship. The severance agreement should contain:

• Purpose of the severance agreement
• Employee's termination and resignation date
• The size of the severance pay, as well as any other benefits such as career counselling, education or telephone
• The time at which the severance pay is to be paid (one-off payment or accrual) and when any other benefits are to be paid
• Relationship with NAV
• Whether the employee can take on other work before the termination date, and whether this will have consequences for the severance pay
• When holiday pay is to be paid, whether holiday pay is to be calculated from the severance pay and the settlement of any remaining holiday
• When an employee leaves the company's pension and insurance schemes
• In the event of downsizing: Whether the employee waives his or her preferential rights
• Relationship to any non-competition clauses
• Return of employer's equipment
• Certificate
• Confidentiality regarding the content and background of the agreement
• Possible coverage of legal fees
• That the severance agreement is a final financial settlement between the parties
• That the parties waive the right to take legal action against each other regarding the employment relationship and its termination

How does severance pay affect benefits from NAV?

Entering into severance agreements can affect the right to benefits such as unemployment benefit, sickness benefit, work assessment allowance and disability benefit etc. from NAV. It is therefore very important for employees who receive, or may receive such benefits in the future, to understand how the various payments are calculated to avoid financial surprises.

As a general rule, you cannot receive sick pay if you also receive severance pay. However, exceptions to this are made in cases where it is agreed in the severance agreement that the employee is free to take on other work during this period, and in addition that salary from any new employer will not result in a reduction of the severance pay.

During the period in which you receive severance pay from your employer, you are generally not entitled to unemployment benefit. If salary under the severance agreement is to be paid as a lump sum, NAV will calculate how long this amount will cover the loss of salary. During this period, you will not be paid unemployment benefits.

An employee who resigns voluntarily, or is dismissed due to his or her own circumstances, is not entitled to unemployment benefits until after 12 weeks. This waiting period begins to run from the time you would normally have been entitled to unemployment benefits.

If the severance agreement is entered into as an alternative to dismissal in connection with a reorganisation or downsizing, you will generally be entitled to unemployment benefits from the day you are registered as a jobseeker and have submitted an application for unemployment benefits. You can therefore avoid an extended waiting period if your employer confirms the reason for entering into the severance agreement. This should therefore be included in the severance agreement, and this will be important documentation that you can present to NAV if necessary when claiming unemployment benefits.

Work assessment allowance and disability pension As a general rule, severance pay is deducted crown by crown from the payment of severance pay.

The labour law team at Halvorsen & Co has extensive experience in assisting both employers and employees with the negotiation of severance agreements. Contact us for advice and assistance during the negotiations.

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Lotte Lundby Kristiansen

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