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Employment Separation (Severance) Agreement

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The employment separation agreement, also known as an “employee termination agreement“, is a mutually benefiting legal document that concludes an individual’s business with an employer. The agreement holds each other harmless for any activities that may have occurred during the employment period as well as the employee’s termination. If the separation is without cause, there may be severance or other monetary consideration to the employee for their immediate discontinuance. Depending on the terms, it may be required that both parties are to keep the details of the agreement confidential.

Employment Termination Checklist (PDF, MS Word, ODT) – Make sure an employee is properly released in accordance with company protocols.

Employee Termination Letter – Often sent before a separation agreement is authorized to initially inform the employee that their services are no longer needed.

Table of Contents

What is a Separation Agreement?

The main purpose of the agreement is to indemnify the employer and the employee of any wrong-doing during the course of the employment period. 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

When it comes time to terminate an employee it’s never an easy task. It means confronting the person, either in-person or through other communication, and informing them that their services are no longer needed. Although, this is something every successful business must confront.

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 which 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 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 piece of mind they need to leave on good terms.

Revocation Periods

Under the Age Discrimination in Employment Act, specifically 29 CFR 1625.22, an employer is required to provide a ‘revocation period’ after a settlement, severance, or separation agreement has been signed that allows the employee to revoke the separation agreement. The 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 consideration 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 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 a Separation Agreement

Download: Adobe PDF, Microsoft Word (.docx) or Open Document Text (.odt)

1 – The Separation Template Can Be Downloaded Using This Page

The agreement form on this page will enable two parties in an Employer/Employee relationship to document the way their relationship dissolves. The buttons attached to the image on this page will grant you access to PDF, Word, or ODT version of the displayed document.

2 – Clearly Present This Document’s Effective Date And The Parties Involved

The article labeled “I. The Parties” will function as an introduction that gives a very brief description of this paperwork. The blank lines contained in this statement (and nearly all others) will need to be satisfied with information that you supply. Begin by documenting the calendar date when this agreement becomes active using the two blank lines just before the label “Effective Date.” The official name of the Employer in this relationship must be disclosed. If this is a business entity, make certain that any suffix of status (i.e. corp., ltd., etc.) included in the Employer’s business name on the books is recorded as well. Enter the full name of the Employer on the third blank line in this statement (preceding the label “Employer”). The Employer’s business mailing address should be supplied on the blank lines after the words “…With A Mailing Address Of.” Populate the three blank lines after this phrase with the street address, city, and state making up the Employer’s mailing address. The remainder of this statement will require information detailing the Employee in this relationship. Document his or her name (first, middle, and last) on the blank line attached the parenthesis label “Employee.” In addition to the Employee’s name, we must identify his or her mailing address. Use the final three blank lines in this statement to detail the street address, city, and state of the Employee’s mailing address. This should be the complete address so if the Employee has an apartment number or second address line these should be included on the first blank line after this phrase.

3 – Give A Definition To The Current Employer/Employee Relationship

We must include a report on the dates that will define when the employment relationship being discussed is active and when it is terminated. This can be handled nicely by entering the calendar month, two-digit-day and two-digit year of the Employee’s last calendar date of employment with the Employer using the two blank lines corresponding to the “Employee’s Last Day” label in the second article (“II. Employment Status”). The Employee’s last paycheck should also be documented here. Supply the month, day, and year of the Employee’s last pay date utilizing the last two blank lines in “II. Employment Status.”

4 – Discuss The Responsibilities The Employer And Employee Must Fulfill

The Employer may have some additional financial responsibilities to the Employee as a result of the termination of their relationship. In “III. Severance,” we shall define whether the Employer will make payments to the Employee after the term of employment has ended. If the Employer will not be obligated to make any payments in addition to the Employee’s normal wages, then mark the box labeled “No Severance.” If the Employer will be obligated to make one additional payment to the Employee, then mark the box labeled “Single Payment” and enter the dollar amount that shall be paid to the Employee as a severance payment on the first blank line in this choice. If this is the case, then proceed to item “A” in this selection and report whether additional severance will be delivered to the Employee. If not, then mark the box labeled “Not Other Severance.” If so, then mark the “Other Severance” box and report what such severance consists of on the blank line provided.  If the Employer is expected to provide the Employee with more than one severance payment then, leave the first two choices in this selection unmarked and mark the “Multiple Payments” checkbox. You will also need to define the dollar amount of each payment the Employer is required to make to the Employee on the blank line after the dollar sign with the last calendar date when such payments can be made  after the words “Ending On.” Then, define how often these payments will be made by marking the checkbox “Weekly,” “Bi-Weekly,” “Monthly,” or filling in a specific schedule on the blank line provided. Once this is done, attend to item “A” in this choice by marking either the box labeled “No Other Severance” or the checkbox labeled “Other Severance” then detailing the additional severance the Employer must supply the Employee. In the next article, “IV. Return Of Property,” we will report if the Employee must return property to the Employer. If the Employer has no such requirement of the Employee then, mark the checkbox labeled “No Obligations.”  If the Employee will be expected to return any items to the Employer then, mark the checkbox labeled “Employee Liable To Return” this will require a manifest of the items the Employee must return entered on the blank line after the words “…Returned To The Employer.” If the Employee must return these items by a specific calendar date, then report this calendar date on the two blank spaces in item “A) Return Date.” The following article will also require our attention. In “V. Non-Compete,” we will address possible concerns of the Employer regarding the security of intellectual property, trade secrets, etc. If the Employer will not expect the Employee to refrain from working in the “…Same Or Similar Industries That Directly Or Indirectly Compete” with the Employer’s business, then mark the first checkbox.   If the Employer expects the Employee to refrain from competing in the same or similar industry in any way then, mark the second checkbox, labeled “There Shall Be A Non-Compete.” This requires you produce some additional information to some of the items presented.  Begin by reporting each industry the Employer intends to restrict the Employee from participating in on the blank line in “A.) Industries.” Then, in item “B.) Term,” enter the number of days or months the Employee must refrain from engaging in the restricted industries and mark either the “Days” or “Months” checkbox to indicate how this number is being reported. Finally, item “C.) Location” will require a definition of where the Employee may not compete with the Employer. You can define location as an area by marking the “Radius” checkbox then supplying the number of miles from the address you report on the blank lines provided, as a state by marking the second checkbox and reporting the state, as the entire country by marking the third checkbox (“Nationwide”), or as the entire world by marking the last checkbox (“International”). Make sure to fulfill these list requirements of these items only if you have indicated there will be a noncompete agreement.  Oftentimes, the Employee will be receiving a benefits package provided by the Employer in addition to his or her pay. In the sixth article, labeled “VI. Employee’s Benefits,” we will report the determined status of this benefits package. The blank spaces provided in this paragraph will require the calendar date of the first day when the Employer will no longer provide benefits to the Employee.

5 – Provide Some Details Regarding Dispute Resolutions And The Courts

Sometimes a level of confusion or possible animosity (intentional or unintentional) may exist in the Employer/Employee relationship being discussed. Whether or not this is the case, we must document an entity where the Employee may address any remarks made by the Employer that may be considered detrimental, erroneous, or both. Supply the name and contact information of the entity that will receive Employee inquiries regarding such a subject on the blank line in “XII. Disparaging Remarks.” The name of the state that holds jurisdiction over this agreement and will handle any official court actions that result from it should be recorded on the blank line in “XVI. Governing Law.”

6 – Make Sure All The Terms Of This Agreement Are Adequately Documented

The Employer and Employee should both review the completed paperwork thoroughly. The information supplied by the preparer should be a very accurate representation of what each party expects of the other and how each party is expected to behave as a result of agreeing to these terms. If there are any terms that have not been documented but should be considered part of this agreement then, you must supply these terms or provisions in the area provided in “XVII. Additional terms Or Conditions.” If you need more room to do so then you may either add more space using your editing software or you can attach such information and cite that attachment’s title in this area.

7 – Both Parties Must Execute This Document By Signature

The agreement we have just completed should be read through once it is completed. Any attachments should also be reviewed and included by the time the Employee and Employer execute this agreement. This goal will only be reached once both parties have provided a binding signature to the area at the end of this document. If the Employer is a business entity, then an officially elected Authorized Representative should be determined by the board of executives or owner of the entity and provided for this signing.

The Employee named in the first article must locate the area containing the blank lines labeled “Employee’s Signature,” “Date,” and “Print Name.” He or she will need to sign his or her name, print his or her name, and report the date when both these actions were performed using these spaces. The Employer or an Authorized Representative of the Employer must, similarly, locate the lines “Employer’s Signature,” “Employer’s Entity Name,” “Print Name,” “Title,” and “Date.” He or she must sign the “Employer’s Signature” line and, if the Employer is a business entity, produce the official name of the Employer as it was listed in the first article on the “Employer’s Entity Name” line. Additionally, the Signature Party’s full name and any applicable title (i.e. Vice-President, Owner, Partner, etc.) should appear in print on the last two lines. If the Employer has no official entity name and the Signature Party has no title, these lines may be deleted and left blank.


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