Employment Separation Agreements Explained

Should You Sign Employment Separation Agreements or Ignore Them?

When people decide to leave their jobs for any reason, their employers might suggest signing employment separation agreements.

The question is whether you should do it. If you believe there are any unsettled matters, you might want to postpone the signing-off process and seek advice from an attorney.

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What Are Employment Separation Agreements?

Some companies use employment separation agreements when they decide to terminate an employee. Employers do this because they would like to protect their businesses from a potential binding claim.

An employment separation agreement is a document showing both the employee and employer have reached an amicable termination of the employment contract.

What you should know is that employment separation agreements are:

  1. Not legally required
  2. Used to protect:
    • Business information
    • Companies from lawsuits

It means that if you sign an employment separation agreement, you will no longer be able to sue your employer for:

  • Severance pay—An amount you get from your employer when your employment ends
  • Wrongful dismissal—If your employer fired you illegally or wrongfully

Employment Separation Agreement Terms and Conditions

Employment separation agreements define the terms and conditions both parties agree to. Here are some common provisions:


Details of the employment separation

This section:
  • Identifies the parties
  • Sets employment and termination date

It can:

  • Provide a specific reason for leaving, e.g., termination, resignation, or layoff
  • State simply the employee is leaving the company

Severance pay

This part can determine a monetary payout but is not obligatory as, according to U.S. laws, an employee needs to receive only:
  1. Accrued vacation
  2. Salaries due on the final working day

Before you agree to the offered severance pay, consult :

  • The employee handbook—termination rules and procedures
  • Your employment agreement—conditions regarding severance packages

Amount and delivery method

This section exists in case your employer provides wages and other payouts. It has to define the:
  • Exact amount
  • Nature of the compensation

The payout can be a lump sum or a structured plan, and this part needs to set the:

  • Date(s)
  • Duration
  • Delivery method
  • Payment structure

Tax and insurance

This part of the agreement sets tax deductions and payment policy in case your company continues to pay your health insurance plan, e.g., if you are part of a group health insurance program

Additional Provisions

Other standard terms of employment separation agreements include the following:

  • Non-compete provisions—This part will prevent you from taking a job in your field for a specified time or in a certain location. In other words, you will not be able to work for the competition
  • Non-disclosure—Your company might require you to keep the employment separation agreement conditions confidential. Make sure to check the non-disclosure agreement outlining what exactly remains private and the exceptions to the non-disclosure clause
  • Non-disparagement—This part of the agreement defines and limits what you can or cannot disclose about the employer

You should be aware that the conditions of this contract supersede any other contracts you have, such as your employment agreement.

Protect Your Rights With an Employment Separation Agreement

Make sure you review the proposed employment separation agreement carefully before signing it as most of the set terms determine your:

  • Financial situation, e.g., the severance package part
  • Future job prospects, e.g., the non-compete section

You should be aware that your company will propose a separation agreement to protect their rights and interests. That is why you should analyze all the terms and conditions carefully and consult the labor laws of your state or an attorney.

Make sure you protect your rights, and do not forget that a fair employment separation agreement protects the interests of both parties. You should ask for advice if your employer presents an overly complicated agreement and you do not understand the terms.

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