Employment Separation Agreement

Why Use an Employee Separation Agreement?

An employee separation agreement serves as a tool to protect the interests of both the organization and the departing employee. By outlining the terms and conditions of the separation, this legally binding document helps ensure that both parties understand their rights and responsibilities, making the transition smoother and minimizing the risk of future disputes.

For instance, if an employee is terminated on questionable grounds, they should carefully review the separation agreement to understand the rights they may be relinquishing. Likewise, employers should craft agreements that adhere to legal requirements and protect their business interests.

Common reasons for employment separation include:

• Performance issues. If an employee consistently fails to meet performance expectations, this may lead to termination.
• Retirement. As employees reach retirement age, they may choose to leave their positions, making way for new talent in the organization.
• Financial considerations. Employers may need to lay off employees to cut costs during difficult financial times, while employees might seek better-paying opportunities elsewhere.
• Relocation. Employees may need to leave their positions if they move to another city for personal reasons.
• Family priorities. Employees may choose to prioritize spending time with their growing families, putting their careers on hold.

It’s crucial for both parties to examine the clauses of the employee separation agreement carefully. If the language is too complex or unclear, seeking professional legal advice is recommended.

By ensuring that the agreement serves the interests of both the employer and the employee and is in line with the relevant employment act, a fair and balanced separation can be achieved, reducing the likelihood of future disputes, including wrongful termination violations or legal proceedings pertaining to verbal or written agreements.

For a separation agreement between spouses, see the divorce settlement agreement template.

Key Components of a Separation Agreement Template

An employee separation agreement template typically includes the elements below. Each one covers a different part of the departure, from the date and reason for separation to payments and the promises the employee makes after leaving.

1. Separation details: This section outlines the date of separation, the company’s identification, and the reason for separation, such as termination, resignation, or retirement.
2. Waiver of claims: This clause stipulates that by signing the agreement, the employee acknowledges that they are relinquishing any right to pursue legal action against the company, including those related to written agreements previously entered into. Both employees and employers should carefully review this section to ensure it is fair and legally compliant.
3. Severance: While the law may only require payment of outstanding wages or unused vacation time, employers often offer additional incentives, such as extra pay or temporary continuation of health insurance, to encourage employees to sign the separation agreement.
4. General payments: This section details any other financial compensation the employee may receive upon signing the agreement.
5. Non-compete clause: A non-compete clause, which may have been part of the initial employment contract, restricts the employee from becoming a direct competitor or working for a competing organization for a specified period after termination.
6. Non-disclosure clause: This essential component of the agreement prevents the employee from disclosing sensitive or proprietary information after leaving the company, protecting the organization’s intellectual property and trade secrets.
7. Non-disparagement clause: This clause prohibits the employee from making negative or damaging public statements about their former employer after the separation.

By incorporating these components into your employee separation agreement, you can create a comprehensive and legally sound document that addresses the needs and concerns of both parties.

Create a personalized Employment Separation Agreement online now!

Create and Print Online Now

How to Fill Out the Employment Separation Agreement

The steps below follow the FormsPal template, which you can fill in online or download as a PDF and complete in the PDF editor. They go in the same order as the form, from the first page to the signature lines on the last one.

The screenshots under each step show the FormsPal Employment Separation Agreement template filled with sample entries in blue, so you can see where each answer goes. The names, addresses, dates and amounts are examples only.

Step 1: Agreement date, Employee and Company

At the top of page 1, enter the month, day and year of the agreement, then the Employee’s name and the Company’s name.

• Employment separation agreement date. This agreement must mention the date when both parties will start obliging to follow its term.
• Employer. The employer is the first party, and this section must include the full legal name of the business.
• Employee. The employee is the other party of the agreement and must be filled with their full name and complete mailing address.

Step 2: Recitals

In the first two recitals, enter the dates the Employee worked for the Company and the date the termination takes effect.

Also, the period for which an employee works for the company must be appropriately calculated, and the employee must be provided with the payment for the same.

Step 3: Section 1, Severance

Enter the date the Employee’s position ends. Then add the time of day, in the Company’s local time, when the Employee’s offices and titles end.

Step 4: Section 2, Payment

Check the box that fits your situation:

• No payment. Check the first box if the Company pays the Employee nothing.
• Payment of an amount. Check the second box and enter the dollar amount on the line.
• One lump sum. Also check the lump sum box if the amount is paid all at once.

Step 5: Section 2, Installments

If the payment is split, check the installments box on page 2. Then enter the number of equal installments and the period they run over.

Step 6: Section 4, Non-Compete

Check the first box if the non-compete does not apply. Check the second box if it does, then enter the number of months it lasts after the termination date.

Step 7: Section 4, Non-Compete markets

If the non-compete applies, list the market or markets where it limits the Employee on the line below the second box.

Step 8: Section 7, Employee Benefits

Look for the Employee Benefits section on page 3.

You will have to enter the profits provided in the employer-employee relationship and add the last date when the employer must provide such an advantage to their employee.

Step 9: Section 11, Governing Law

Find the State of line in the Governing Law section on page 3 and enter the state there.

Lastly, you must fill in the state’s name and other relevant details concerning the governing law. It is essential to mention the state’s name within the jurisdiction of which these agreements will be valid. The name must be mentioned in Article XVI.

Step 10: Additional Terms

Write any extra terms on the lines under Additional Terms. Leave the lines blank if you have none.

Step 11: Company signature block

On page 4, enter the Company name. The Company’s representative then signs on the By line and prints their name and title.

Employer’s and employee’s signatures and names must be included in the agreement.

Step 12: Employee signature

The Employee signs on the Signature line and prints their name on the Printed Name line.

How to Sign and Use the Employment Separation Agreement

Once every part of the form is filled in, a few practical steps finish the job. Work through them in order, and give each side a copy of the signed agreement.

1. Return company property. Decide what company property is coming back and when. At the time of exit of a worker from the company, the no-obligation checkbox should be marked if they are not required to return any property to the company. If the employee is expected to return the property, it must be received within a specific deadline, which must be filled in item A of Article IV.
2. Review the finished agreement. Read it from start to finish and check that the names, dates and amounts match your records.
3. Sign the printed copy. Each side signs where the form shows a signature line on page 4.
4. Keep a copy. Give each side a signed copy and store yours with your records.

General information, not legal or tax advice.

Jennifer M. Settles

Author & Attorney

With over 25 years of experience as a business and transactional attorney, Jennifer has mastered the craft of closing highly successful deals for her clients. Through her wide-ranging expertise in commercial contracts, real estate transactions, M&A and corporate law, Jennifer secures results that are second-to-none.