Employment & HR
Severance Agreement
An agreement providing compensation and benefits to an employee upon termination in exchange for a release of claims against the employer.
Overview
An agreement providing compensation and benefits to an employee upon termination in exchange for a release of claims against the employer.
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Who Needs This Document?
Employers conducting layoffs, companies restructuring, and employees negotiating departure terms.
When Do You Need This?
Used when terminating employees, especially during layoffs, restructuring, or when the employer wants to secure a release of claims in exchange for severance benefits.
Key Provisions
A well-drafted document should include the following essential provisions:
- Severance payment amount and schedule
- Release of claims and waiver provisions
- Continuation of benefits (health insurance, equity vesting)
- Non-disparagement and confidentiality obligations
Frequently Asked Questions
- Why do employers offer severance in exchange for a release of claims?
- Severance isn't usually required by the underlying employment relationship on its own; employers offer it specifically to obtain a signed release, in which the departing employee agrees not to sue over the termination. The payment functions as consideration for that release, which is why severance agreements are structured as a negotiated exchange rather than a unilateral benefit.
- Can a severance agreement keep health benefits running after departure?
- Yes, severance agreements commonly include a period of continued health coverage, either by extending the employer's plan directly or by covering the cost of continuation coverage the departing employee elects separately. This is a frequently negotiated term, since a gap in coverage right after losing a job is one of the biggest practical concerns for a departing employee.
- What does a non-disparagement clause in a severance agreement actually prevent?
- It restricts the departing employee, and often the employer as well, from making negative public statements about each other, such as bad-mouthing the company to future employers or on social media. The clause typically carves out truthful statements required by law, such as testimony under subpoena, so it isn't a blanket gag on ever discussing what happened.
Related Documents
- Termination LetterA formal notice informing an employee of the end of their employment, including the reason, effective date, and final arrangements.
- Employment ContractA comprehensive agreement between employer and employee defining the terms of employment including compensation, benefits, duties, and conditions.
- Non-Compete AgreementRestricts an individual from competing with a former employer or business partner for a specified period within a defined geographic area.