Severance Agreement - Kit

Severance Agreement – Kit

Information

This kit provides tools and guidelines for drafting an employee’s severance agreement.

A severance agreement is an agreement between an employer and an employee, detailing the terms under which the employee’s relationship with the employer will be terminated. The employer usually pays the employee a certain amount of money in the form of a severance bonus, in exchange for which the employee makes certain promises to the employer. The most important of these promises is generally a release of claims, preventing the employee from bringing a lawsuit against the employer after termination. Other promises include non-solicitation and non-disparagement provisions.

Additionally, severance agreements will generally set forth the pre-existing obligations of the employer and the employee. These provisions are intended to clarify obligations that exist independent of the severance package, and thus do not constitute consideration for the severance agreement itself, or for the promises and covenants contained in the agreement. Such obligations include the employer’s responsibility to pay employee’s wages up until the termination date, and the employee’s responsibility to return all property in his possession that belong to the employer.

This kit includes a sample form of a severance agreement, along with general instructions that will help you to understand each provision of the agreement so that you can make revisions as necessary to meet your specific circumstances.

Please note that this form is intended to assist you in understanding and preparing a basic severance agreement document, but that you are advised to consult a competent employment law attorney before either signing any such agreement or before offering it to an employee for his/her signature.

Disclaimer:

No Attorney-Client relationship is created by use of these materials. FindLegalForms, Inc. does not provide legal advice. The purchase and use of these materials is subject to the “Disclaimers and Terms of Use” found at findlegalforms.com.

These materials are provided "AS-IS.” We do not give any express or implied warranties of merchantability, suitability or completeness for any of the materials for your particular needs. The materials are used at your own risk. In no event will: i) FindLegalForms, Inc, its agents, partners, or affiliates, or ii) the providers, authors or publishers of the forms, be responsible or liable for any direct, indirect, incidental, special, exemplary, or consequential damages (including, but not limited to, procurement of substitute goods or services; loss of use, data, or profits; or business interruption) however caused and on any theory of liability, whether in contract, strict liability, or tort (including negligence or otherwise) arising in any way out of the use of these materials. An attorney should be consulted for all serious legal matters.

Instructions for Severance Agreement

There are a wide variety of issues that a Severance Agreement can address. Below is a general overview of the significance and meaning of the clauses included in this kit’s sample Severance Agreement form. This form addresses a few of the more common issues that can arise in the context of an employee termination/resignation. If your situation requires treatment of more complex issues, you should consult a competent attorney who can assist you in drafting a suitable agreement.

Existing Company Obligations

In the context of an employee’s severance, the employer generally has certain obligations that are owed to the employee regardless of severance terms. For example, the employee is generally entitled to be paid his salary or wages up until the date of termination. Such obligations are not dependent upon the employee’s execution of a severance agreement and thus, does not constitute consideration for any promises the employee would make to the employer in such an agreement. More examples of these kinds of obligations are payment for accrued vacation or sick days, and reimbursement for unreimbursed business expenses.

Existing Employee Obligations

The employee generally will also have pre-existing obligations in the context of severance. The employer will want to be assured that the employee has wound up all affairs relating to his/her employment, and has returned all of the employer’s property.

Severance Bonuses

Severance payments are payments or conferral of privileges or bonuses for which the employee is not otherwise entitled. They are given to the employee in exchange for the employee’s execution of the severance agreement, and for his acceptance of the promises and covenants contained in that agreement.

Health Insurance

In most cases, employees are entitled to continue their health insurance coverage under federal COBRA laws. This extension can be anywhere up to 36 months. In some cases, an employer will pay for the employee’s COBRA-extended health insurance premiums for a set period of time, or until the employee finds a new job and is enrolled in a new health insurance plan.

Release

One of the primary promises that an employee is expected to make in exchange for a severance payment is a release of claims. This release will prevent the employee from filing any sort of lawsuit, employment-related or otherwise, against the employer, for causes arising out of the employee’s employment.

It is important to note that the laws of your state may require additional language in order to ensure that the employee’s release is knowing and valid. You are advised to have a competent employment law attorney in your state review this agreement prior to signing it.

Waiver of ADEA Claims

The Age Discrimination in Employment Act (ADEA) prohibits discrimination against individuals 40 years of age or older in the employment context. In order for an employee to validly release any claim that he or she might have in the future against the employer, there is very specific language that must be included in the release. The Equal Employment Opportunity Commission has issued guidelines for this language, and any substantial deviation from it may result in a reviewing court ruling the waiver unenforceable.

Exit Incentives and Group Terminations

In the context of a waiver of claims under the ADEA, additional language may be required where one or more employees are being are resigning pursuant to an exit incentive program, or where multiple employees are being terminated as a class.

First, the section must state the eligibility requirements for such an exit incentive, or the criteria used to dismiss the class of employees. Second, it must state the job titles and ages of all employees that were subject to exit incentives or termination. Lastly, this section must state the ages of all employees who are in the same position or organizational unit within the company, but who were not terminated, or who were not eligible for any exit incentives.

You are advised to have a competent attorney review any severance agreement prior before you sign it or offer it to an employee for the employee’s signature in any case, but especially if one or more of the employees using the agreement is 40 or older, and thus protected under the ADEA.

Mutual Non-Disparagement

Generally, both the employer and the employer will agree to some form of non-disparagement provision. In exchange for the mutual promises and benefits, the parties guarantee each other that they will not defame or disparage the other in the future.

Non-Solicitation

Another promise expected of an employee is a non-solicitation covenant. This kind of provision prohibits a terminated or resigning employee from taking any of the employers customers, clients, or other employees with him when he leaves.

Loans (Optional, Not Included Below)

If the employee has any loans that he/she owes to the company at the time of termination, a severance agreement can be a useful way of addressing such an issue. In some cases, the company will forgive all or a portion of the debt. In other cases, the severance agreement will spell out repayment terms for the payment of the debt owed to the company. These types of provisions are generally highly fact specific, and require specific drafting to the circumstances of your situation.