Separation Agreement
A separation agreement is a contract between an employer and a departing employee that outlines the terms of the employee's departure, including severance pay, benefits continuation, release of claims, and post-employment obligations.
What Is a Separation Agreement?
A separation agreement (also called a severance agreement or termination agreement) is a legal document signed when an employee leaves a company, whether through layoff, termination, or mutual agreement. It provides the departing employee with benefits beyond what they are legally entitled to (such as severance pay and extended benefits) in exchange for the employee waiving their right to bring legal claims against the employer. Separation agreements also typically include confidentiality, non-disparagement, and non-compete provisions to protect the employer's interests after the employee's departure.
When to Use a Separation Agreement
- Laying off employees during a reduction in force
- Terminating an employee and offering severance
- Negotiating a mutual separation with an underperforming employee
- Restructuring a department or eliminating a position
- Settling a workplace dispute through agreed-upon departure terms
Key Clauses to Include
Severance Payment
Details the severance amount, payment schedule (lump sum or installments), and any conditions for receiving payment.
Release of Claims
The employee waives the right to sue the employer for claims arising from employment, including discrimination and wrongful termination.
Benefits Continuation
Specifies whether health insurance, retirement benefits, or other benefits continue after departure and for how long.
Non-Disparagement
Both parties agree not to make negative public statements about each other following the separation.
Confidentiality
Reinforces the employee's obligation to protect company trade secrets and confidential information after departure.
Return of Company Property
Requires the employee to return all company equipment, documents, access credentials, and intellectual property.
How to Create Your Separation Agreement
- 1Calculate a fair severance package based on tenure and position
- 2Include a comprehensive release of claims covering all potential legal issues
- 3Specify benefits continuation terms including COBRA information
- 4Add non-disparagement and confidentiality provisions
- 5Allow the required review period (21 days for individual, 45 for group layoffs)
- 6Include the mandatory 7-day revocation period required by the ADEA
Frequently Asked Questions
Is a separation agreement required when terminating an employee?
No, separation agreements are not legally required. However, they are strongly recommended because they provide the employer with a release of claims in exchange for severance benefits. Without a separation agreement, the employer provides nothing extra but remains exposed to potential lawsuits.
Can an employee negotiate a separation agreement?
Yes, separation agreements are negotiable. Employees often negotiate for higher severance, extended benefits, a positive reference, accelerated vesting of equity, or modified non-compete terms. Having legal counsel review the agreement is recommended for both parties.
What is the review and revocation period?
Under the Age Discrimination in Employment Act (ADEA), employees over 40 must be given at least 21 days to review the agreement (45 days for group layoffs) and 7 days to revoke their acceptance. These periods cannot be waived, and the agreement is not enforceable until the revocation period expires.
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