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An employment separation agreement is a contract setting an employee's exit terms. The agreement lists each side's promises at the end of employment: severance pay, benefits, release and property return. Employers use it with departing employees; this guide walks through each clause and form step.
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An employment separation agreement is a written contract between an employer and a departing employee that fixes the terms of the exit: the last day, the payments, the benefits and the promises each side keeps afterward. The same document goes by several names, including employee separation agreement, work separation agreement, severance agreement and separation and release agreement.
The agreement is a deal between two parties. The employer offers something of value, such as severance pay or continued health coverage. The employee gives something back, most often a release of claims and promises about confidentiality and competition.
A severance package is the pay and benefits an employer offers at the end of employment, and the separation agreement is the signed contract that delivers them. The package answers "what does the employee receive"; the agreement answers "on what terms". A package without a signed agreement carries no written release from the employee.
A work separation agreement covers the end of a job, not the end of a marriage or a business partnership. For spouses who are separating, the right document is a divorce settlement agreement. For a new hire, the terms of the job itself belong in an employment contract.
A work separation agreement fits any planned exit where the employer offers something in return for the employee's promises. It works for an exit the employer starts and for one the employee chooses.
Common reasons for employment separation include:
The agreement gives both sides a written record of what was promised. Each side reads every clause before signing, and either side can ask a lawyer to review the terms when the language is unclear.
An employment separation agreement includes the parties, the separation date, the payment terms, the release and the employee's promises after leaving. Each clause below matches a section of the form.
The separation details name the employer and the employee, the dates the employee worked for the company and the date the employment ends. The recitals at the start of the form hold these facts, so the rest of the agreement can refer to them.
The payment clause states how much the employer pays and when. The form offers three choices: no payment, a set amount paid in one lump sum, or a set amount split into equal installments over a stated period. Severance can also include benefits, such as health coverage that continues until a date the agreement names.
A non-compete clause limits the employee from working for a competitor or starting a competing business for a set number of months after the termination date. The clause also names the markets it covers. Often the restriction first appeared in the employee's original employment contract, and the separation agreement either repeats it or switches it off.
The confidentiality clause keeps the employee from sharing the company's private information, such as client lists, pricing and trade secrets, after leaving. A stand-alone non-disclosure agreement covers the same ground in more detail. The non-disparagement clause asks the employee not to make damaging public statements about the former employer. Neither clause can limit the employee's right to testify, assist, or participate in an EEOC investigation, hearing, or proceeding, as the EEOC guidance on severance agreement waivers says.
The property clause lists the company items the employee hands back, such as a laptop, keys, badges and documents, and the date they are due. When the employee holds no company property, the form has a box that says so.
The governing law clause names the state whose law the agreement follows. The additional terms lines hold anything the standard clauses miss, such as a reference letter or the handling of a final expense report.
A release of claims is the employee's promise not to sue the employer over the employment or its end, given in exchange for the severance pay or benefits in the agreement. The release is the main thing the employer receives from the deal.
The EEOC guidance on severance agreement waivers lists three conditions for a valid agreement besides a knowing and voluntary signature:
A release in this agreement also has limits the employee keeps. The EEOC guidance on severance agreement waivers says no agreement between an employee and an employer can limit the employee's right to testify, assist, or participate in an investigation, hearing, or proceeding conducted by the EEOC.
A separation agreement that releases age discrimination claims of an employee aged 40 or older follows the Older Workers Benefit Protection Act, 29 U.S.C. § 626(f). The EEOC summary of that section lists what such a waiver needs.
Under 29 U.S.C. § 626(f)(1), a waiver of age claims by an employee aged 40 or older is knowing and voluntary only when, at a minimum, all seven of these conditions in subparagraphs (A) to (G) are met:
When the waiver is requested in connection with an exit incentive or other employment termination program offered to a group or class of employees, 29 U.S.C. § 626(f)(1)(F)(ii) gives each employee at least 45 days to consider the agreement. In such a program the employer must also inform each employee in writing of the group covered, the eligibility factors and time limits, and the job titles and ages of those eligible or selected and of those not selected, under 29 U.S.C. § 626(f)(1)(H).
State law can add its own conditions to a release, and the EEOC guidance on severance agreement waivers names two examples. Under Minn. Stat. § 363A.31 subd. 2, a release of claims under the Minnesota Human Rights Act may be rescinded within 15 calendar days of signing, at any age, and the employee must be informed in writing of that right. Under California law, the EEOC guidance on severance agreement waivers says a waiver cannot release unknown claims unless it contains specific language providing for that.
The employment separation agreement form runs in twelve steps, from the agreement date on page 1 to the signature lines on page 4. The steps below follow the same order as the form.
The screenshots under each step show the form 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.
Step 2: Recitals
In the first two recitals, enter the dates the Employee worked for the Company and the date the termination takes effect.
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 the deal:
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
Find the Employee Benefits section on page 3. Describe the benefits the Employee keeps, such as health coverage, and enter the last date the Company provides them.
Step 9: Section 11, Governing Law
Find the State of line in the Governing Law section on page 3 and enter the state there.
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.
Step 12: Employee signature
The Employee signs on the Signature line and prints their name on the Printed Name line.
A completed separation agreement is made when both sides sign it on the last page, and a few tasks around the signing close out the exit. An agreement that waives the age claims of an employee aged 40 or older does not become effective or enforceable until the revocation period of at least 7 days after signing has expired, under 29 U.S.C. § 626(f)(1)(G). Work through the tasks in this order.
A severance package is the set of payments and benefits an employer offers a departing employee, such as salary continuation, payment for unused vacation time and continued health coverage. The separation agreement is the contract that states the package and what the employee promises in return.
A severance amount is whatever the employer offers and the employee accepts, and the agreement records it in Section 2 of the form. Employers often base the figure on the employee's pay and time with the company, and the employee can negotiate it before signing.
An employee aged 40 or older who waives age discrimination claims has seven days after signing to revoke the signature, under 29 U.S.C. § 626(f). For other employees, the right to revoke depends on the agreement's own terms and on state law; in Minnesota, for example, a release of Minnesota Human Rights Act claims may be rescinded within 15 calendar days, under Minn. Stat. § 363A.31 subd. 2.
An unsigned separation agreement binds no one: the employee does not receive the severance pay or benefits it offers, and the employee keeps the claims the release would have covered. The employer and the employee can also negotiate new terms and sign a revised agreement.
Yes. The EEOC guidance on severance agreement waivers says an employee who signed a waiver can still file a charge with the EEOC, and no agreement can limit the employee's right to take part in an EEOC investigation, hearing, or proceeding.
The rights an employee gives up depend on the clauses in the signed agreement: the release of claims, the non-compete, the confidentiality clause and the non-disparagement clause. Read each one before signing, and ask a lawyer when the language is unclear.
No. A business separation agreement ends a partnership or joint venture between owners, while an employment separation agreement ends the relationship between an employer and an employee.
General information, not legal or tax advice.
