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Severance Agreement Review

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A severance agreement review is a process of evaluating a contract between an employer and an employee that details the terms of their separation. It may be used by either party to ensure that they are treated fairly during the termination process. You need to make sure that your severance agreement is legally sound. The last thing you want is for your severance agreement to be challenged in court, which can result in costly litigation.

When you work for a company, you enter into an employment contract. The contract may be an oral agreement, or it may be in writing. Regardless of the form, the agreement includes basic compensation and benefits, job description, and working hours. When an employer terminates your employment, it must follow specific procedures to avoid liability under federal and state law as part of the severance agreement.

The severance agreement is one way employers can protect themselves from lawsuits by employees who feel they were wrongfully terminated. Here's what you need to know about severance agreements and how they work.

What is a Severance Agreement?

A severance agreement is a contract between an employer and an employee that provides terms for terminating the employment relationship.

Severance agreements are most commonly used in uncertain situations surrounding whether or not an employer will terminate an employee's employment relationship.

For example, if your employer decides to lay off part of its workforce, it may offer severance packages to those being let go. In this case, it may be useful for employees to negotiate a severance agreement in advance to know their rights should they be terminated.

In some cases, employers may also offer severance packages to current employees looking for new jobs. For example, suppose you're leaving your job because you got a better offer elsewhere. In that case, your employer may offer you more money in exchange for signing a non-compete agreement that prevents you from working for its competitors until the end of your notice period (or longer).

Components of a Severance Agreement

The components of a severance agreement are the same as any other employment contract. The following elements are typically included in most severance agreements:

Severance Pay

Severance pay is a payment made to an employee upon termination of the employment relationship. It may be paid in the form of a lump sum or can be in the form of regular payments over some time.

Benefits Package

In addition to getting paid, employees often have questions about their benefits after they leave a job. A severance agreement can specify whether an employee will continue to receive medical coverage through COBRA or if they will be eligible for unemployment benefits. It might also include information about whether they can participate in their company's retirement plan after leaving their job.

Non-Compete Clause

A non-compete clause prohibits an employee from working for another company in the same industry for a certain period after leaving employment with their current employer. These clauses are often used as part of severance agreements because they protect intellectual property while allowing employees to move on to other opportunities quickly after leaving one job for another.

Confidentiality Agreement

A confidentiality agreement is a contract that prohibits the parties from disclosing information. The purpose of such an agreement is to prevent the disclosure of information that may be detrimental to one party or another. The agreement can be used in almost any type of business. It can apply to any information relating to the company or any other parties involved in the operation of that company.

Covenant Not to Sue

A covenant not to sue is a promise by the employee not to take legal action against the employer after leaving. It may also be called a release or waiver. A covenant not to sue is intended to protect your company from potential lawsuits by former employees who claim they were wrongfully terminated or are owed money for work performed during their employment.

Covenants not to sue usually specify what types of claims will be barred by the covenant and how long it lasts after employment ends. For example, if you have a covenant that bars former employees from filing lawsuits against you for three years after leaving your company, any lawsuit filed during that time would be thrown out because it was filed too late under this covenant.

Termination date

This is when the employee's employment will end, and the company will no longer employ them. The termination date cannot be changed once it is set unless there is a mutual agreement between the employer and the employee.

Reason for termination

The reason for terminating an employee's employment should be clearly stated in this agreement section. It is usually listed as "terminated for cause" or "terminated without cause." If you terminate an employee for cause, you can withhold all or part of their final paycheck if you feel they owe you money for any reason (e.g., damaged company property).

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Why Should You Consult a Lawyer for a Severance Agreement?

In general, if you're going to sign a severance agreement with your employer, you should consult a lawyer first. This is because both parties need to understand what they agree to and their obligations upon signing the severance agreement.

It's possible that both sides could have different interpretations of the terms in a severance agreement, and those misunderstandings could lead to trouble down the road if they aren't resolved before signing the document.

You should consult a lawyer for a severance agreement because:

  • You can get advice on the legal issues involved and ensure your rights are protected.
  • A lawyer can explain to you what the law requires for your severance agreement to be valid.
  • A lawyer can help draft your severance agreement to be legally binding and enforceable.

In some cases, an employer may offer you a severance package as part of an exit strategy from the company. If you leave the company, they will provide you with some benefits in exchange for not suing them for wrongful termination or other employment-related claims. Severance packages can include money, stock options or other significant compensation benefits.

Key Terms

  • Severance Package

    A severance package is a lump sum payment given to an employee who has been laid off or fired. This can also be referred to as a "severance agreement." Severance packages are often given when there is no written employment contract or when the employment contract does not provide for one.

  • Termination Date

    The date the employment relationship is terminated is usually the last day of work. The termination date is usually specified in the Employment Agreement (or severance agreement) signed when an employee first accepts a position with a company. It will also be specified in any subsequent employment agreements.


You've just been laid off and want to know if the severance agreement presented to you is fair.

Like most people, you'll likely try to find out what the deal is by asking friends or family. But unless they are lawyers, they won't be able to give you a legal opinion.

That's why it's important to seek the advice of a lawyer experienced in employment law issues. At ContractsCounsel, we can review your severance agreement and give you an unbiased analysis of whether it contains any legal problems or issues.

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