Severance (Employment Separation) Agreement

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Updated October 24, 2022

A severance agreement allows an employer to terminate an employee without further liability. For the mutual agreement to be legally binding, it must include a consideration, such as severance or a one-time payment.

Revocation Periods – Under the Age Discrimination Act, an employee can cancel a separation agreement within seven days if they are under 40 years old, and within 21 days if they are over 40 years old.

Table of Contents

What is a Separation Agreement?

The main purpose of a separation agreement is to indemnify — or protect — both the employer and the employee from claims of wrongdoing. 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)

1. Identify the Terms of Termination

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.

2. Plan When to Terminate

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.

3. Decide Employee’s 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.

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.

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.

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 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 types of discrimination laws that the employer will want to be exempt from — federal and state — which protect employees from discrimination based on:

  • Disability
  • Race
  • Religion
  • Color
  • Sex
  • Sexual orientation
  • Age
  • National origin
  • Ancestry

Related Forms


Employment Termination Checklist – Use as a guide when terminating an employee.

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