What is a severance agreement?

A severance agreement – also known as a separation agreement serves as a contract between an employer and an employee documenting the rights and responsibilities of both parties upon and after the termination of the employment relationship. A severance agreement is normally presented to an employee when terminating an employment relationship.

Why have an employee sign a severance agreement?

You want an employee who is leaving (either resigning or is fired) to sign a severance agreement to avoid problems in the future. There is no law that requires an employer to pay an employee beyond the wages, commissions, or non-discretionary bonuses earned. Because a typical severance agreement involves the payment of extra money to an employee, you will want to get certain things in return for your company. Sometimes, the most important reason to get a severance agreement is to eliminate the possibility for future claims against you, your company, or those affiliated with your company for any employment-related issues by the terminated employee. You are paying for future peace of mind. In other situations, the most important term to your company could be to have the employee agree to not compete or take your employees for a certain period of time. I also have seen situations in which a company is not concerned with what a disgruntled employee would do, but what they would say – and so the importance of the separation agreement is to require that the former employee keep certain information confidentiality and to not talk badly about the company.

Can you require to a fired employee to sign a severance agreement on the spot?

The answer to this question depends on the age of the employee. Generally speaking, if the employee is younger than 40, yes. But, if the employee is over 40, then the answer is no. Federal law provides that an employee over 40 cannot be bound by an agreement to give up certain rights that is signed without giving them time to consider and then back out of the agreement. This federal law requires employers to give their employees who are older than 40 years old up to 21 days to consider a separation agreement that releases all employment claims and then another 7 days after signing it to consider whether to revoke the agreement.

Can you re-use the severance agreement for different employees?

Of course! That is, unless there is a change in the law. We will work with you to create a severance agreement that you can modify to fit your needs for each situation. You can add or delete language that does not apply, you can change amounts and dates, and you can re-use the severance agreement. Our goal is to help you create a document that you can not only re-use, but that you can feel comfortable knowing that you can reach out to us before a problem situation arises.

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