Employment Separation (Severance) Agreement

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An employment separation agreement is a mutually agreed upon contract that allows an employer to terminate an employee without further liability. For the agreement to be legally binding, it must include ‘consideration’ such as severance or a one (1) time payment.

Revocation Period – Under the Age Discrimination Act, an employee can cancel a separation agreement within seven (7) days if under 40 years old and within twenty-one (21) days if over 40 years old.

Table of Contents

What is a Separation Agreement?

The main purpose of a separation agreement is to indemnify both the employer and the employee of any wrongdoing during the course of the employment. On both sides, there is a chance that either party could be accused of any type of misconduct, whether warranted or not.

Each party should be on guard for common liability that is present in common workplace atmospheres:

Employer’s Liability

  • Discrimination
  • Harassment
  • Job-related Accidents
  • Worker’s Compensation

Employee’s Liability

  • Negligence
  • Harassment
  • Solicitation
  • Non-Compete & Non-Disclosure

How to Terminate an Employee (5 steps)

It is recommended to use an Employment Termination Checklist (PDF, MS Word, ODT) when letting go of an employee while following the steps below.

Step 1 – Identify the Employee’s Wrongdoing

Honesty is always the best policy. Gather occurrences or testimonials from their co-workers and outline their faults and why they are no longer a fit for the company or organization. In order to help the person, it’s the duty of the employer to help the terminated individual help themselves.

Step 2 – Plan a Time and Location

Plan a time to speak with the individual. Unless the employee is working abroad, it’s recommended for all parties to leave on good terms by approaching and informing them in person. Furthermore, the best is to do this one-on-one. People tend to react differently around other people and both parties will have a better chance at an honest conversation if there isn’t an audience.

Step 3 – Decide Their Last Day

Despite popular opinion, it is NOT best to let someone go on a Friday, or worse, before a holiday weekend. Unless there is severance, it’s best to begin the termination process early or mid-week in order to give them a better chance at finding new employment.

Step 4 – Request a Separation Agreement

In order to indemnify both parties, the parties should authorize a separation agreement that states that no party is guilty of any wrongdoing and that the employee’s termination was due solely based on their actions. In addition, if there is severance due to the employee the payments and amounts should be listed in this agreement.

Step 5 – Offer to Assist in the Transition

The last remaining obstacle for the terminated individual will be to finalize their termination and move on to the next chapter of their life. The best way for an employer to help is by offering to write a recommendation letter. Furthermore, it should be noted that if the employer is contacted that a positive endorsement will be given to any requests for information about the former employee.

Due to every employment situation being unique and personal relationships that may develop through one’s career, it’s best to also provide any emotional support if possible. Having a “going away party” or another event that assists in the transition will help give the person the peace of mind they need to leave on good terms.

Revocation Periods

Under the Age Discrimination in Employment Act (29 CFR 1625.22(d)(4)), an employer is required to provide a ‘revocation period’ after an agreement has been signed. This allows the employee the decision to revoke the separation agreement during this time period.

The legally required revocation periods are as follows:

  • Seven (7) days for individuals under forty (40) years old; and
  • Twenty-one (21) days for all individuals over forty (40) years old.

The employee will be required to return any and all considerations or payments that were made as part of the agreement in order to be revoked.

Severance

In exchange for the employee to honor the separation agreement, the employer must make some type of consideration. Consideration is an amount that can be legitimately passed as payment for an individual or entity to fulfill an obligation. For it to be considered legitimate, it must make sense in the context of what is being asked. For example, a $100 payment to the employee for a list of demands that severely impair the employee’s ability to find new employment may not seem fair in the eyes of any court.

  • Recommended Severance – It’s advised to give any former employee two (2) weeks’ severance upon the termination of their employment as long as he or she signs a separation agreement.

Employment Discrimination

In most agreements, there are two (2) types of discrimination laws that the employer will want to be exempt from, Federal and State discrimination laws which cover:

  • Disability;
  • Race;
  • Creed;
  • Color;
  • Sex;
  • Sexual Orientation;
  • Religion;
  • Age;
  • National origin; or
  • Ancestry.

Employment Discrimination – Federal Laws

Employment Discrimination – State Laws

How to Write

Download: Adobe PDF, MS Word (.docx) or OpenDocument

I. The Parties

(1) Separation Agreement Date. Begin this agreement with a report of the date when the Employer and Employee will first be obligated to its terms. This date will serve to aid in identifying this document in the future as well as solidify when the Participants in this agreement have made it effective.

(2) Employer. The Employer must be identified with the full legal name of his or her Business. This will be the Entity that has previously hired and paid the concerned Employee and will use this agreement to establish how the employment period must end. Remember to include any status suffix necessary for the Employer’s name to be considered complete. Once done, continue through the “Employer” section to report the mailing address where this Entity can be reached.

(3) Employee. The other Party of this agreement, the Employee, must also be named. Document this Party’s full name and complete (mailing) address. This will be the Party who has worked for the Employer and will utilize this paperwork to end the current period of employment.

II. Employment Status

(4) Final Day Of Employment. The last date when the Employee will be required to work for the Employer must be dispensed to Article II.

(5) Paid Period. It is important that the work time that has been engaged in by the Employee is adequately paid for. Document the most final calendar date of work that the Employer has paid (or will pay) the Employee for in Article II.

III. Severance

(6) No Severance. Locate the third article for a brief discussion on severance payment. If there will be no severance owed to the Employee, then select the first checkbox statement presented in this article. This will mean that the term of employment and current compensation for the work provided will complete the Employer’s payment obligations to the Employee.

(7) Severance In Multiple Payments. If the Employer will pay severance to the Employee then select the “Severence In Multiple Payments” definition. Once this option is selected, several additional several supporting items of information will need to be presented, beginning with the dollar amount of the payment earned (regularly) by the Employee, the final date of payment, as well as the frequency of payments. To define how often the Employee will be paid severance, select the “Weekly,” “Bi-Weekly,” “Monthly,” or “Other” checkbox. Note, if you have selected “Other,” it will be necessary to present the time interval that defines the payment amount entered earlier.

(8) Other Severance Payments Owed. Item A will require some further definition of the severance status of this separation. If there will be no other severance payment then select the first checkbox statement in this item. Otherwise, select the checkbox labeled “Other Severance” and define the payment that will be submitted to the Employee as the additional severance payment.

(9) Severance In A Single Payment. In some cases, the severance pay this document obligates the Employer to submit to the Employee will be delivered as one payment. If the Employer will submit the severance pay as a single payment, then choose the appropriate checkbox definition and supply the amount of money making up this payment.

(10) Other Severance Payment. Continue to Item A of this statement if there will be an additional type of severance payment to be made. If “No Other Severance” will be due then select the first checkbox statement. Otherwise, choose the second checkbox, then define the “Other Severance.”

IV. Return Of Property

(11) No Obligations. If the Employee is not required to return any property of the Employer at the time of termination, then locate the “No Obligations” checkbox. Select this item to release the Employee from this requirement.

(12) Employee Liable To Return. If the Employer will expect the Employee to return property lent for the duration of employment then select the second checkbox statement in Article IV and present an inventory of the property the Employer expects the Employee to return. For instance, the Employee may have sensitive files or office equipment that the Employer owns.

(13) Return Date. Naturally, it would be considered wise to assign a specific date as a deadline for when all property the Employee is obligated to return to the Employer must be received. Furnish this date to the space reserved for this information in Item A of Article IV.

V. Non-Compete

(14) There Shall Not Be A Non-Compete. Once the Employer and Employee separate there may be a period of time when the Employee will not be allowed to seek employment with any of the Employer’s Competitors or (in some cases) similar industries. If the Employee of this agreement will not face such restrictions then mark the first checkbox in Article V.

(15) There Shall Be Non-Compete Condition(s). If the Employee may not continue to gain further employment in an industry similar to that of the Employer’s or in the same industry as part of a non-compete agreement, then select the second checkbox statement from Article V.

(16) Industries. List every industry this contract will forbid the Employee from working in once separated from the Employer that was named in Item A.

(17) Term. Any non-compete restriction this contract places on the Employee may not exist indefinitely. Such an action would be considered both illegal and crippling to the Employee’s professional life in the majority of cases. Thus, use the space provided in Item B and the checkboxes that follow (“Days” and “Months”) to record precisely how long the non-compete conditions will be in effect. Bear in mind, that many states will place conditions to the length of time a non-compete restriction may be imposed on a departing Employee therefore, it is imperative that any non-compete condition in this contract is compliant with the applicable state laws that govern it.

(18) Location. Any non-compete condition imposed when an Employee and Employer separate must have its geographical area of effect solidified. One of the checkbox statements provided in Item C will aid in achieving this goal. For instance, if the non-compete conditions are applied to an area around a certain city, then select the word “Radius.” Once done, document the number of miles where the effect of this document will be felt as well as the address, city, and state at the center of this radius.

(19) State. If the non-compete area imposed on the Employee can be defined by the state, then document the name of the state where the Employee may not seek to work (in the same industry as the Employer).

(20) Nationwide Non-Compete. Choose the “Nationwide” statement to apply the non-compete conditions of this agreement to every state in the United States.

(21) International Non-Compete. Select the “International” statement if the non-compete conditions of this contract will apply to every state in the United States as well as areas outside this country’s borders (i.e. Canada).

VI. Employee’s Benefits

(22) Final Benefit Date. Many Employer/Employee relationships will provide benefits (i.e health insurance)to the Employee. Present the last date when the Employer will be obligated to provide these benefits to the Employee.

XII. Disparaging Remarks

(23) Employer Contact. Document the full name of the person or department where all inquiries made to the Employee regarding the Employer may be directed in Article XII.

XVI. Governing Law

(24) State. While this agreement may effect these Parties beyond the state where it is executed, it is imperative that the name of the state whose courts will maintain this agreement’s effect is identified. Name this state in Article XVI.

XVII Additional Terms Or Conditions

(25) Include All Additional Provisions. A space in Article XVII has been provided so that any conditions that the Employer and Employee have agreed should be a part of this contract but have not been covered may be presented. If more room is needed for this task it may be continued on an attachment but make sure such an attachment is labeled and cited.

XVIII. Entire Agreement

(26) Employee’s Signature And Name. The Employee must show that he or she will enter and comply with this agreement by signing his or her name. Additionally, the Employee should print his or her name where requested.

 

(27) Employee Date.

(28) Employer’s Signature And Name. The Employer is also obligated to execute this document by signature. In most cases, the Employer will be a Business Entity however, the signature may be presented through a formal Representative that is appointed by the Business. The Employer Signature Representative (or Employer) must sign his or her name then print it.

(29) Employer Date.