Find a Job You Really Want In
When a company decides to terminate an employee’s position, it often seeks to have the individual sign a separation agreement. This legal document outlines the terms of the termination, aiming to create a mutually beneficial arrangement for both the employer and the employee. Essentially, it formalizes the understanding that both parties view the termination as equitable.
Separation agreements, also referred to as “termination agreements,” “release of employment claims,” or “severance agreements,” are not mandated by law. However, companies typically utilize them to safeguard sensitive information and mitigate potential legal issues in the future.
Key Takeaways:
-
An employee separation agreement is a legal document that establishes a mutual understanding between a company and a terminated employee.
-
A separation agreement generally includes:
-
Details of the separation
-
Severance information
-
Confidentiality clause
-
Age discrimination reference
-
-
Prior to signing any separation agreement, ensure you fully comprehend the rights you are relinquishing and the terms of the agreement.
What Is a Separation Agreement?
An employee separation agreement is a formal legal document that outlines the terms agreed upon by both the company and the terminated employee.
-
Upon signature by both parties, the terminated employee waives their right to pursue legal action against the company in the future (e.g., for wrongful termination or severance pay). The provisions of this agreement override any prior agreements between the parties.
-
Most employment in the U.S. operates under “at-will” policies, allowing employers to terminate employees at any time, for any reason, barring discriminatory motives based on race, gender, age, ethnicity, disability, pregnancy, religion, etc.
-
Ultimately, while separation agreements primarily protect companies from potential lawsuits, employees often receive compensation in exchange for waiving their legal claims. This can take the form of financial benefits or additional perks.
What Does a Separation Agreement Cover?
Employment separation agreements can differ widely in content, but they typically include several key provisions:
-
Separation details. The agreement should specify the identities of both parties (the company and the terminated employee), the final employment date, and potentially the reason for termination (e.g., layoff, resignation).
-
Waiver of claims. This section indicates that the employee is relinquishing the right to file lawsuits against the former employer. This may encompass claims related to wrongful termination or compensation. It’s crucial to read the specific language of your agreement, as the claims you waive will depend on the document’s wording.
-
Severance. Companies often utilize severance packages as an incentive for employees to sign the agreement. These packages may consist of additional payments, continued health insurance, or stock options. Remember, severance is not a legal requirement; employers are only obligated to pay for wages owed through the final working day and any unused vacation time.
It’s advisable to familiarize yourself with your company’s severance policies to ensure you receive all entitled benefits. Importantly, a separation agreement supersedes any other contracts you may have signed with the company, including your employment contract.
The agreement should specify the amount, nature, and timing of the compensation provided to the former employee.
-
General fee. Though uncommon, some companies may offer a monetary incentive for signing the agreement.
-
Non-compete clause. If you previously signed a non-compete agreement during your employment, it may not be reiterated here, as that would be redundant. A non-compete clause typically prevents you from taking up a position that directly competes with your former employer.
-
Confidentiality clause. Depending on the nature of your work, this clause may restrict you from disclosing proprietary company information to outsiders.
-
Non-disclosure clause. Similar to the confidentiality clause, this prohibits you from sharing the specific details of your separation agreement.
-
Non-disparagement clause. This may prevent you from publicly criticizing your former employer.
-
Age discrimination reference. Employees over the age of 40 are protected under the Older Workers Benefit Protection Act (OWBPA), which is part of the Age Discrimination in Employment Act (ADEA).
Why Use a Separation Agreement?
Separation agreements primarily serve to protect a company’s interests.
-
Employees are not obligated to sign, giving them leverage to negotiate terms that also safeguard their rights. Ensure you fully comprehend what rights you are waiving and whether the offered compensation justifies those waivers.
If you suspect wrongful termination based on discrimination, consider alternative routes to protect your rights rather than signing the agreement.
-
Carefully review the agreement’s provisions. Pay attention to the specified time frame and understand what it covers (e.g., immediate termination or potential future claims).
-
Avoid feeling pressured into signing a complex document that you do not fully understand. If the language is overly complicated, seek legal counsel. Never waive your rights without a clear understanding of what you are giving up; ensure your interests are protected alongside those of your former employer.
Additional Information for Employees Over 40
As previously mentioned, wrongful termination based on discrimination, including age, can lead to a lawsuit. Employees over 40 are safeguarded by the Older Workers Benefit Protection Act (OWBPA), which mandates strict compliance from employers when terminating older employees. All separation agreements for employees over 40 must reference the ADEA; failure to do so can lead to legal repercussions.
Furthermore, employees in this age group are granted 21 days to contemplate the severance offer before it expires. After signing, they have an additional 7 days to revoke the agreement.
Questions to Consider Regarding Your Separation Agreement
Ultimately, a well-crafted separation agreement should safeguard both the company’s and your own interests. Be cautious of employers who draft overly complex agreements, as this may be an attempt to intimidate you into signing without full understanding. If faced with such a circumstance, seek legal advice before signing anything.
Consider the following questions:
-
What claims are you relinquishing? Ensure you fully understand the implications of any non-compete, non-disclosure, non-disparagement, or other restrictive clauses in your agreement. If anything is unclear, consult the HR team or your company’s representatives. If their explanations are insufficient or make you uncomfortable, seek legal counsel.
-
Is the reason for your termination clearly stated? If you believe your termination is discriminatory, do not sign the separation agreement. The document should explicitly outline the reasons for your termination, and you should feel comfortable with that rationale before agreeing to it.
-
What time frame does the agreement cover? If the agreement restricts your actions beyond your employment period, be aware that it may impose more limitations than one that only pertains to your time with the company.
-
How does this contract protect your rights? A contract should benefit both parties—if you feel the terms are unfavorable, do not sign until you can renegotiate or consult a labor lawyer.
Author
Matthew Zane is the lead editor of Zippia's How To Get A Job Guides. He is a teacher, writer, and world-traveler that wants to help people at every stage of the career life cycle. He completed his masters in American Literature from Trinity College Dublin and BA in English from the University of Connecticut.
