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Severance Agreements: A Helpful Guide

Whenever someone leaves your organization, you should enter into a severance agreement, ensuring that you are legally protected. However, severance agreements are not always required or appropriate in every situation. These agreements need to be tailored to the concerns of your company and the position the employee filled. Furthermore, take into consideration the circumstances of the employee’s departure and the company’s policies. With that said, there are certain elements that are found in nearly all severance agreements.

What Is a Severance Agreement?

The first thing both employer and employee need to know is what a severance agreement is. In essence, it is a contract that outlines the responsibilities of all parties as they relate to ending the employee’s position at the company. Its primary purpose is to demonstrate that the employee understands and agrees to the terms of their exit from the company and for them to affirm they will not sue for wrongful termination. It can also outline post-employment obligations, protect confidential information, and address other matters related to the employee’s departure.

Key Elements Included in Severance Agreements

A quality contract lawyer will tailor the elements included in a severance agreement to fit with the needs and concerns of the employer. This means that unless you have a keen understanding of contract law, you may not find it easy to draft an iron-clad agreement. However, the following elements cover many of the central concerns that drive severance contracts.

Exchange of Value

Also called consideration in legal parlance, this refers to the compensation that the employee receives after signing the agreement. This usually takes the form of severance pay, but this is not always the case. Without an exchange of value, severance agreements are generally not considered valid if contested in court.

Confidentiality

Depending on the position the employee occupied, this may or may not be a significant consideration. Assuming you had an iron-clad employment contract, there should already be a legal agreement preventing the employee from revealing confidential information they encountered during their time with your company. This clause in the severance agreement is meant to prevent separation terms from being discussed with others. The idea behind this is that they will not discuss the terms with other employees, which could give those individuals more bargaining power should they be let go in the future.

Non-Compete

Non-compete clause are tricky, and in most cases, are better off as fleshed out agreements. The purpose of this clause is to prevent a former employee from leaving your organization to work for your competition. It must specify how long the agreement is enforceable and who the competition is.

Non-Solicitation

This clause is similar to a non-compete. However, instead of preventing the employee from leaving your company to work for a competitor, it stops the employee from becoming the competitor. The clause should specify that the employee cannot take any of your clients with them to their new place of employment or their own business.

Non-Disparagement

You do not want former employees to say negative things about their time with your company and damaging your reputation. This clause in their severance agreement is meant to prevent them from doing so. Some companies even prevent former employees from taking negative actions, though this can get complicated and is best done with the help of a contract lawyer. Basically, this clause prevents the employee from making negative statements about the company or its employees, so it is used to protect the company’s reputation.

Consult With Vetted Contract Attorneys Near You

Severance agreements are complex documents with a lot of room for error. Instead of drafting them yourself, work with a vetted contract lawyer through Contracts Counsel. A boutique marketplace, we help you connect with attorneys experienced in drafting contracts for your industry.


ContractsCounsel is not a law firm, and this post should not be considered and does not contain legal advice. To ensure the information and advice in this post are correct, sufficient, and appropriate for your situation, please consult a licensed attorney. Also, using or accessing ContractsCounsel's site does not create an attorney-client relationship between you and ContractsCounsel.


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