How to Draft a Severance Agreement
Include all provisions., Comply with state and federal laws., Obtain employee and employer signatures.
Step-by-Step Guide
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Step 1: Include all provisions.
When drafting a severance agreement, it is important that you tailor the agreement to your specific circumstances.
If you are an employee, don’t sign a generic severance letter but rather think through what parts are the most important to you and focus on restructuring those parts in a manner that may be acceptable to both the employee and employer.
Generally, a severance agreement will include the following parts:
A termination provision that specifies the reason that the employment was terminated.
A description of the severance payment.
This should specify all payment to which the employee is legally entitled, including unused sick and vacation days, compensation set forth in an employment agreement, an employee’s final paycheck, prorated bonuses and commission, as well as an amount of additional pay that the employer is offering in exchange for the employee waiving his or her right to sue.
A release provision that states that the employee is waiving his or her right to file any lawsuits, including discrimination claims, claims for unpaid wages, and/or unlawful termination.
A description of the employee’s health insurance benefits including information about COBRA, which is insurance that the employee can pay for out-of-pocket to remain on the employer’s insurance policy.
A confidentiality provision, which outlines all of the post-employment obligations an employee has to refrain from sharing trade secrets or other company business.
An employee could also negotiate to have the severance agreement be part of the confidentiality provision.
A non-compete provision that explains in what industries or for which competitors that the employee is not entitled to work and the length of time that the provision is in effect.
A non-disparagement provision whereby the employee agrees not to make any negative public comments about the employer.
An employee should have this be a mutual agreement so that the employer cannot make disparaging comments about the employee.Some employers also offer employment services for a limited time such as access to career services or a career coach to assist you in securing a new job.You can review a sample severance agreements at: http://nature.berkeley.edu/ucce50/ag-labor/7article/article36.htm and https://www.upcounsel.com/severance-agreement. -
Step 2: Comply with state and federal laws.
Your severance agreement must comply with state and federal labor and employment laws.
For example, there are certain claims that cannot be waived in a severance agreement, including:
Claims under the Fair Labor Standards Act.
Certain worker’s compensation claims.
Equal Employment Opportunity Commission claims.You can review a list of federal and state labor and employment laws at: https://www.law.cornell.edu/wex/table_labor , In order for the agreement to be a binding contract, both the employee and a representative of the employer must sign the document. -
Step 3: Obtain employee and employer signatures.
Detailed Guide
When drafting a severance agreement, it is important that you tailor the agreement to your specific circumstances.
If you are an employee, don’t sign a generic severance letter but rather think through what parts are the most important to you and focus on restructuring those parts in a manner that may be acceptable to both the employee and employer.
Generally, a severance agreement will include the following parts:
A termination provision that specifies the reason that the employment was terminated.
A description of the severance payment.
This should specify all payment to which the employee is legally entitled, including unused sick and vacation days, compensation set forth in an employment agreement, an employee’s final paycheck, prorated bonuses and commission, as well as an amount of additional pay that the employer is offering in exchange for the employee waiving his or her right to sue.
A release provision that states that the employee is waiving his or her right to file any lawsuits, including discrimination claims, claims for unpaid wages, and/or unlawful termination.
A description of the employee’s health insurance benefits including information about COBRA, which is insurance that the employee can pay for out-of-pocket to remain on the employer’s insurance policy.
A confidentiality provision, which outlines all of the post-employment obligations an employee has to refrain from sharing trade secrets or other company business.
An employee could also negotiate to have the severance agreement be part of the confidentiality provision.
A non-compete provision that explains in what industries or for which competitors that the employee is not entitled to work and the length of time that the provision is in effect.
A non-disparagement provision whereby the employee agrees not to make any negative public comments about the employer.
An employee should have this be a mutual agreement so that the employer cannot make disparaging comments about the employee.Some employers also offer employment services for a limited time such as access to career services or a career coach to assist you in securing a new job.You can review a sample severance agreements at: http://nature.berkeley.edu/ucce50/ag-labor/7article/article36.htm and https://www.upcounsel.com/severance-agreement.
Your severance agreement must comply with state and federal labor and employment laws.
For example, there are certain claims that cannot be waived in a severance agreement, including:
Claims under the Fair Labor Standards Act.
Certain worker’s compensation claims.
Equal Employment Opportunity Commission claims.You can review a list of federal and state labor and employment laws at: https://www.law.cornell.edu/wex/table_labor , In order for the agreement to be a binding contract, both the employee and a representative of the employer must sign the document.
About the Author
Charlotte Jimenez
Specializes in breaking down complex DIY projects topics into simple steps.
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