For business owners, employment separation agreements may offer protection from lawsuits, address any complications surrounding the termination of an employee, and provide a measure of closure for both parties.
Also known as termination agreements or severance agreements, these legal documents override any earlier contracts between the employer and the soon-to-be-former employee. While they’re not required by law, many employers see them as smart insurance policies for avoiding future litigation. So, what’s included in a typical employment separation agreement, and why is it so important that they be drafted correctly?
What can be included in an employment separation agreement?
For an employer, the primary goal of an employment separation agreement is typically to avoid future lawsuits from a former employee. Wrongful termination claims, even when they’re unfounded, can pose major challenges to a business—draining both time and finances.
By signing an employment separation agreement, the terminated employee waives his or her right to file suit. This is the waiver of claims. In exchange for this assurance, the employer offers the employee certain benefits, like a severance package, stock options, or extended healthcare coverage. The severance offerings provide an incentive for the employee to sign the contract.
Additional clauses that some employers may choose to add to their employment separation agreements include:
- Non-compete clause, where the employee agrees not to work for a direct competitor for a set period of time
- Confidentiality clause, where the employee agrees not to disclose any private company information
- Non-disclosure clause, where the employee agrees not to share details of the employment separation agreement
- Non-disparagement clause, where the employee agrees not to publicly criticize the company
Because of the high stakes involved, it’s important to have an attorney draft an employment separation agreement. One that’s poorly written will not hold up in court. Not only does the document need to outline the waiver of claims and any of the potential clauses above, but it must also lay out precise terms around the severance benefits. Because employees are under no obligation to sign the agreement, they may wish to use their leverage to negotiate the agreement.
Additionally, employment separation agreements are not always one-size-fits-all documents. Not only do considerations vary from state to state, but the agreement will likely differ depending on individual circumstances. For example, if the employee is over 40, the letter must reference the Age Discrimination in Employment Act, and any offer will be given more time for consideration.
At InPrime Legal, we understand the protection an employment separation agreement may offer a business. Schedule your free evaluation with InPrime Legal today, either through our contact form or by calling 770-282-8967.
Disclaimer: This blog should not be used as a substitute for competent legal advice from one of our licensed attorneys.