Severance and separation agreements protect both businesses and employees when an employment relationship ends. Properly setting up these agreements can help ensure that both parties are clear on their rights and responsibilities. The key is creating a fair, clear, and legally sound agreement that addresses potential issues before they arise.
Clearly define terms and expectations
The first step is to define the terms of the separation. Both the employer and employee should agree on the terms, including the reason for separation, the severance payment, and any continuing benefits. The agreement should be clear about what each party expects from the other, leaving no room for misunderstandings.
Address confidentiality and non-compete clauses
A well-drafted agreement should include provisions for confidentiality and, if necessary, a non-compete clause. The confidentiality clause ensures that sensitive company information remains protected even after the employee leaves. A non-compete clause can prevent employees from working for competitors or starting a similar business that could harm the company’s interests. It is important to make sure these clauses are reasonable and enforceable under state laws.
Include a waiver of claims
A key element to preventing future issues is having a waiver of claims in the agreement. This waiver requires the employee to give up the right to sue the company for any claims related to their employment or the separation process. However, the waiver should not violate any laws, such as discrimination protections, and must be written clearly for the employee to understand its significance.
Provide proper consideration and time to review
To ensure the agreement is valid, offer proper consideration, such as severance pay or a continuation of benefits, in exchange for the employee’s waiver of claims. Additionally, give employees time to review the agreement—usually 21 to 45 days, depending on the circumstances. This helps avoid claims of coercion or unfair pressure during the signing process.
By carefully crafting severance and separation agreements, businesses can minimize the risk of lawsuits and foster smoother transitions for departing employees.