Employment Separation Agreement

When an employee is exiting a company, either due to termination or some violations, the employer must document the terms and conditions of the termination of employment not to attract any further liability.

An employment separation agreement is a contract between the employer and employee leaving the company that encapsulates the consideration to prevent further liability. The consideration usually goes in the form of severance pay or a one-time payment.

This agreement should represent the complete and written understanding of the terms agreed on between the employer and the employee leaving the company or organization. Although an employment separation agreement is not legally binding unless signed by both parties, it is advisable to execute this type of agreement as most states have some regulations in place that elaborate on the termination of employment.

Why Should You Use an Employment Separation Agreement?

An employer uses an employment separation agreement to protect and safeguard the organization’s interests. But it is not only the company and employer whose interests are safeguarded; the employees are also eligible to have their rights protected. Therefore, both parties must read the conditions provided in the employment separation agreement and sign after that.

For example, consider yourself an employee terminated on wrongful grounds. In that case, you should carefully read all the conditions provided in the separation agreement and the rights you are giving upon.

Some of the other common reasons for employment separation are listed below:

  • Performance of employee. Whenever an employer hires an employee, they have certain expectations from the latter. If the employee does not meet such expectations and does not perform accordingly, it becomes a significant reason for the termination of the job.
  • Retirement. As and when the employee gets older, their retirement period comes near, and they may claim to spend quality time with their family or spend time with other work that suits their area of interest. Retirement helps the employer so that we can find fresh talent for the companies and fill the vacant positions.
  • Financial reasons. There can be two perspectives for this reasoning. From the employer’s perspective, they often lay off their employees to save the company’s funds during times of distress. From the employee’s perspective, they might leave if they get a better job offer from another company.
  • Changes in geographical location. There may arise a situation when the employee might have to move to another city due to personal reasons, and in such scenarios, they have to leave their current employment.
  • Increase in family members. Some employees welcome their children and want to give them time on a priority basis. This reason can be sufficient for them to keep their employment on hold.

However, no employee should be bullied or forced to sign and agree to whatever the agreement asks for. It is imperative to examine every clause associated with an employment agreement carefully. If the jargons are too complicated, the employee can seek professional legal assistance. Therefore, the employment separation agreement must cover the interest of the company and the employees so that a balance is maintained and no dispute shall arise in the future.

What Are the Components of an Employment Separation Agreement Template?

An employment separation agreement template covers the following details:

  • Separation details

The separation details include the conditions associated with the date of employment, identification of the company, and the employee’s reason for separation, which can be any like termination, resignation, or retirement.

  • Waiver of claims

A specific clause in the agreement template states that upon signing this agreement, the employee agrees to waive their claim against the company or any associated rights. This term means that the employee, upon being terminated, cannot sue the company for whatsoever reason.

Therefore it is essential for the employee to read the terms very carefully and for the employers to frame the terms so that it does not invite any lawsuit against the company upon employment termination.

  • Severance

Laws suggest only including wages or any leftover vacation for the employee. But usually, employers give incentives to employees to sign the separation agreement template. In the form of incentives, they usually give some benefits like additional pay, continued health insurance policy for some time, etc.

  • General charges

Apart from severance benefits, employees can also receive some money upon signing the agreement.

  • Non-compete clause

At the commencement of your employment, you may sign a non-compete clause that mentions that you cannot be a direct competitor of your employer. This clause can also be mentioned in the separation agreement to prevent the employee from disclosing sensitive data after the employment termination.

  • Non-disclosure clause

The non-disclosure clause is crucial in any agreement, specifically a separation agreement. It avoids disputes arising from secrets revealed by the employee with outsiders violating companies’ intellectual property.

  • Non-disparagement clause

Publicly disparaging your former company is usually prohibited under the employment separation agreement template clause.

How to Terminate the Employment?

It is advisable to follow some basic guidelines for the employee’s termination. The steps are listed below:

Step 1. Define the reason

Suppose you feel that the worker has done something wrong that violates the company’s policy and questions their honesty. In that case, you must terminate the particular individual from the employment to protect the company’s interest.

Step 2. Inform the employee in person

It is always advisable to terminate the employee on good terms, which can only be possible by having a one-on-one conversation with them unless the worker is residing somewhere else.

Step 3. Decide on the last working day

It is recommended to begin the separation process during midweek to give the employee a better chance of finding another job.

Step 4. Make the separation agreement

The separation agreement can protect both parties’ interests and lead to a friendly termination. And clauses like severance and confidentiality help terminate the employment peacefully.

Step 5. Assist in settling down

Out of human courtesy, the employee can be offered assistance in settling down to his next chapter of life. The employer can provide them with a recommendation letter that can help them get the next job and settle down smoothly.

Template Preview
Download your fillable Employment Separation Agreement template in PDF.

Filling Out the Employment Separation Agreement

Step 1: Identify the parties

The first step is identifying the employer and employee and indicating the agreement’s date. You’ll need to fill in the following details:

  • Employment separation agreement date. The date must be mentioned in this agreement when both the 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 their 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: Enter the end date of employment

Next, you are expected to indicate the end date of employment and set the paid time frame. The end date of employment includes the last date when the employee will be obliged to work for the employer or company. 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: Provide severance details

Further, you need to check for the severance payment in the following manner:

  • No consideration. In case there is no severance to be paid to the employee, the first box needs to be checked, which means that the tenure of employment and payment for the work will satisfy the employer’s payment obligation to the worker.
  • Severance in multiple payments. If severance is to be paid, you may select severance in multiple payments option. This option is selected for further supporting information items the employee needs, such as the final date of payment, frequency of payments, and others.
  • Severance in a single payment. Sometimes the employer is obligated to provide severance in one go. If this is the case, then choose the relevant checkbox definition and provide the amount of money to the concerned person.
  • Other severance payments. If there is any additional clearance payment, you can continue to item A. Otherwise, no other severance should be selected.

Step 4: Check for return of property

Next, you need to check for the return of property by the employee as follows:

  • No obligation. 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.
  • Employee liable to return. If the company expects the employee to return any property during their exit from the company, the second checkbox should be marked.
  • Return date. 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.

Step 5: Specify the non-compete clause

The fifth step is to read and complete the non-compete clauses carefully in the agreement:

  • No non-compete. There is a time frame allowing the employee to seek a job from their former employer’s competitor. In case of restriction of the above statement, mark the first checkbox in Article V.
  • Non-compete condition. If the employee does not wish to take a new job in a similar industry, mark the second checkbox from Article V.
  • Industries. In this, you need to mention all the industries the employee will be restricted from working in after their termination from the current industry.
  • Term. Non-compete conditions do not apply to an employee’s lifetime; therefore, it is essential to mention the term until when such conditions are applicable. It needs to be filled in item B.
  • Location. Non-compete conditions between the employer and the employee also come with geographical boundaries. The checkbox provided in item C can be marked and filled for such purposes.
  • International non-compete. Select an international statement if the conditions in the agreement apply to geographical boundaries outside.

Step 6: Provide employees benefits

This is one of the vital steps in filling out the agreement. 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 7: Consider relevant laws

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 8. Sign the agreement

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

Frequently Asked Questions

What is a severance package?

The severance clause must be included in a separation agreement from the employer’s perspective. Workers that are terminated from their employment should receive a severance package. It is a package of several payments and benefits offered to the employee on their unwillingness to disassociate with the company. Employers who offer an attractive package enjoy a peaceful termination process.

Can an employee revoke a separation agreement?

Yes, a revocation period is granted by an employer after the agreement is signed. The period gives the workers time to make a firm decision. The revocation period recognized by law is:

  • Seven days for workers under 40 yrs.
  • Twenty-one days for workers over 40 yrs.

What if the employee won't sign the agreement?

Frequently, the employee refuses to sign the separation agreement, but that does not mean that the company cannot terminate their job. As discussed, a separation agreement involves the terms associated with the employment so that a peaceful termination can occur.

These terms are clauses like severance pay and other profits. If the employee accepts and signs the agreement, they may be eligible to receive such gains and are not entitled to bring a lawsuit against the company. If the case is otherwise, the employee will not get the profit and will have an option to sue the company if they want to. However, it is advisable to get the agreement checked by legal counsel to be on the safe side.

How many rights will an employee be giving up upon signing the agreement?

The employee should seek legal counsel if the terms mentioned in the agreement are difficult to understand. Clauses like non-compete, non-disclosure, non-disparagement, or similar clauses must be read very carefully.

Published: Apr 18, 2022