A severance agreement outlines the terms and conditions of the separation between an employer and employee. It is usually used when an employee is terminated or laid off.
There are several elements that are commonly included. The agreement should address how much severance pay the employee will receive and how it will be paid. The amount is often based on the employee’s length of employment and current salary. It should clearly outline whether the employee will continue to receive benefits, such as health insurance, and for how long after their departure.
Confidentiality clauses and more
It may also state that in exchange for the severance package, the employee agrees to release the employer from future legal claims. The employee may also have to agree to a confidentiality clause and not to make negative comments about the company. The employee will likely be asked to return company property as well.
Finally, the agreement may include a noncompete clause which prevents the employee from working for a competitor for a period. This is especially important to review because it could affect the employee’s ability to earn income.
Under a law that will go into effect in January 2024, California will prohibit the enforcement of noncompete clauses in most cases, and the federal government is currently considering restricting their use. However, this doesn’t mean that these agreements are going away, and they may continue to be enforceable in some contexts.
Employee negotiation
Employees may be able to negotiate for additional benefits, a larger amount of compensation, or other items that are important to them. The agreement should allow the employee an adequate time to review before signing.