A separation agreement is a formal contract that marks the end of an employee’s employment term with their employer. It contains a release of claims by the employee against the employer for the termination and any occurrences during the employment period.
It outlines the terms of separation; for example, for termination without cause, a severance or money compensation would be necessary.
It also outlines the agreements made in accordance with the termination from an employer and the employee’s perspective. Alternatively, a separation agreement can be referred to as; an employee termination agreement.
Common Terms of the Employment Separation Agreement
An employment separation agreement should outline the terms you and your employee are obligated to in matters regarding the termination. The agreement may often refer to conditions stated in the employment contract with alterations where necessary.
These terms include;
Details of the separation
The agreement should identify the employer and the employee in question and state when the employee was hired and the effective date of termination. The reasons for the separation can also be highlighted, whether it is because of resignation, layoff, or termination. Instead, it can generally be expressed that the employee is leaving the company.
A severance package
A severance package is a payment made as compensation to someone whose employment has been terminated, often in exchange for a waiver of liability. It is not limited to monetary payments, and it is optional unless stated otherwise in the employment contract. Remember, the objective is to absolve yourself of future claims, and you should address the situation as you see fit to your situation. Severance must be sensible in comparison to what is being asked of the employee.
Amount and method of delivery
Should the employer choose to pay-out the employee as compensation, the amount, date of payment, and nature of compensation should be declared in the employment separation agreement. There are two approaches or methods that you can choose to make the payments, a one-time payment or an installment. Whichever the method, it should be declared in the agreement giving dates, duration, amount, and the payment plan.
Tax and insurance
The agreement should highlight this when an employee is subject to tax deductions from the payments to be made. Where the company is still liable for the employee’s health insurance, the employee should be reassured of the company’s commitment to this. If there is a timeline to this, it should be indicated.
In a case the employer wants to limit the employee from working in a certain field and/or in a specified location, they can do so in a non-compete clause. It is often used to protect the company’s interest and restrict the employee from working for the competitors.
If there is information that the employer wishes to protect and restrict the employee from disclosing, a non-disclosure(NDA) clause can be included in the employment separation agreement. It should state what information such as trade secrets, customer lists that should remain disclosed. A list of those exempted from the NDA, such as lawyers, should be made.
When you do not want the employee to belittle the company by saying negative comments about the company’s products, services, or company policies, you can include a non-disparagement clause in the employment separation agreement in this regard.
Any other aspects of the employment pre and post-termination relevant to the employer can be included in the employment separation agreement.
- An agreement that the employee, after termination, will not seek re-hiring with the employer.
- A declaration of the employee’s obligation to not disclose confidential or proprietary company information
- The withdrawal of all pending claims.
- A waiver and release by the employee of any claims against the employer in the future.
- An understanding for the employee to not sue
- A request to the employee for return of any company property in their possession.
How to Write
Now that the information to be included in an employment separation agreement has been discussed, the question is, how do you include them in the agreement?
Here is the procedure you can employ to ensure you capture everything that is required:
Effective date and the parties involved
The first item that should be addressed in the agreement is its effective date, followed by identifying the employer and the employee who are bound by the employment separation agreement by their full names and mailing addresses. Any suffix such as Ltd, Co associated with the company should be included.
The next step is to state the nature of the employment relationship in terms of payment, the expected last date of employment, and the date of disbursement of payments. The reason(s) for termination can also be highlighted. Where there are deductions made in the final check, t should be stated.
Responsibilities to fulfill
Follow this up by a declaration of responsibilities that the employee and the employee have towards each other and are liable to upon employment termination. They should be discussed in the separation agreement.
The responsibilities can be categorized into the following;
- Return of property: An employee can be obligated to return company property or not. Where you expect the employee to return property belonging to the company, let them know and list the property in question. Highlight consequences of returning the property in poor condition.
- Non-compete: Sometimes, you may require to refrain from working for your immediate competitors. If this is the case, ensure that you highlight it by indicating the companies, term of non-compete, and location, in terms of radius, state, nationwide or international.
- Employee benefits: if the employer chooses or is obligated to continue providing employee benefits, they should be outlined and the date when the employee should expect the benefits to be cut off. Benefits include health insurance, childcare benefits, etc.
- Severance: Declare whether the employee is entitled to severance pay or not. You should give the amount and mode of payment and if they should expect it as single or multiple payments. In the case of multiple payments, declare the intervals in which payments shall be made (weekly or monthly). A recommended Severance is a two-week severance pay that employers are advised to pay their employees once they sign the separation agreement.
Provide details of dispute resolutions And the courts
The next step is to provide the employee with a means to reach out should they disagree or have questions regarding the termination.
Employment termination is a sensitive matter and may negatively affect the employer-employee relationship; that is why a channel for communication is important. Include the state whose laws are governing the employment separation agreement.
Make sure all the terms are adequately documented
Carry out an in-depth review of the document to ensure that all the relevant information has been captured and accurately represents your expectations. Should there be terms that were left out, you can include them as “additional terms.” It is important to have the employee also go through to ensure the agreement is according to their perspective of things.
Signatures of both the parties
Once both parties have agreed to the employment separation agreement’s content, any additional documents necessary to this process should be presented. Once they are verified, the employer and the employee can officiate the agreement by signing at the bottom. Ensure that both parties’ names and date of signing are included. The employee’s signature and the name comes first, followed by the employer’s details, including the job title of the company’s signatory.
Considerations & Benefits
A separation agreement can be accompanied by an employment agreement letter which can reduce the probability of occurrence of the following;
Considerable employer’s liabilities
they include discrimination, harassment, employee’s compensation, and job-related accidents. Once an employee is exposed to working conditions where such treatment occurs, by law, they are required they are eligible for compensation by law. Some employees may see this as an opportunity to get a pay-out after they are terminated, even in cases where they did not happen. Hence, the need for employers to absolve themselves from such claims.
Potential legal risk of the parties
The legal consequences of a breach of the employment separation agreement are highlighted so that the letter can be presented as evidence that the guilty party was aware of their contractual obligations.
The protection of the employer’s trade
This is often captured in a non-compete/ Non-disclosure clause. The prohibition of the employee from sharing information such as marketing strategies, production processes, client lists, etc., ensures that the employer’s business operations are protected.It may also include provisions such as non-compete or confidentiality clause.
The revocation period is the period given to the employee after the signing of the employment separation agreement to revoke the separation agreement.
This provision is made under the Age Discrimination in Employment Act, precisely 29 CFR 1625.22. There are two revocation periods allowed; one is seven days for employees under forty years old and twenty-one days for employees over forty years old. Upon revoking the agreement, the employee is obligated to return any received as part of the agreement.
Discrimination is abhorred in places of work. There are two types of laws that dictate the basis on which an employee could be discriminated on by you as an employer.
Federal laws which can be found under 29 CFR Chapter XIV – Equal Employment Opportunity Commission
State laws contrast from state to state, and they include;
- AL – § 25-1-3
- AK – AS 18.80.210 & AS 18.80.220
- AZ – ARS 41-1463
- AR – § 16-123-107
- CA – GOV Code 12940 – 12952
- CO – § 24-34-402
- CT – Sec. 46a-60
- DE – Discrimination in Employment Act
- FL – § 760.10
- GA – § 45-19-29
- HI – §378-2
- ID – § 67-5909(1)
- IL – 775 ILCS 5/2-102
- IN – IC 22-9-1: Civil Rights Enforcement
- IA – § 216.6
- KS – § 44-1009
- KY – § 344.040
- LA – § 23:332
- ME – § 4572
- MD – § 20-606
- MA – Mass. General Laws c.151B § 4
- MI – § 37.2202
- MN – § 363A.08
- MS – No Fair Employment Law
- MO – § 213.055
- MT – § 49-2-303
- NE – § 48-1105
- NV – NRS 613.330
- NH – § 354-A:7
- NJ – § 10:5-12
- NM – § 28-1-7
- NY – § 296
- NC – § 143-422.2
- ND – § 14-02.4-03
- OH – § 4112.02
- OK – § 25-1302
- OR – § 659A.030
- PA – Section 5. Unlawful Discriminatory Practices
- RI – § 28-5-7
- SC – § 1-13-80 (1)(A)
- SD – § 20-13-10
- TN – § 4-21-401
- TX – § 21.051
- UT – § 34A-5-106
- VT – 21 V.S.A. § 495
- VA – § 2.2-3903 (b)
- WA – RCW 49.60.030
- WV – § 5-11-9
- WI – § 111.321
- WY – § 27-9-105
The demographics covered in these laws include; Color, Sex, Sexual Orientation, Religion, Disability, Race, Creed, Age, National Origin, or Ancestry.
Free Agreement Templates
An employment separation agreement can go a long way in protecting you as the employer and your company. That shows the importance of not just writing one but doing it well. To ease the workload associated with having to come up with one every time you need it, we have provided you with templates you can download and customize to fit your needs. More importantly, they are FREE! Download! Download!
Additional Tips to Terminate an Employee
Terminating an employee can be a very complicated task as there are emotions involved as it might be their only source of income.
Here a few tips you can consider to ensure the termination goes through as smoothly as possible:
Identify the employee’s wrongdoing
Providing the employee with an evidence-based reason (s) for termination can go a long way and reduces objections, and gives them a chance to acknowledge or deny the allegations. This gives them a justifiable reason why you do not consider them as suitable employees.
Plan a time and location
It is advised that you notify the employee of the termination in person so that you can resolve any pending questions and disputes. This ensures no stones are left unturned, and an honest conversation is established.
Decide their last day
The employer should decide the last day of employment. For example, it would be insensitive to terminate an employee on a Friday or a holiday unless a severance is being offered. Early or mid-week is desirable.
Request a separation agreement
It is important to include that both parties were not to blame while highlighting that the termination is solely based on the employee’s wrongdoings.
Offer to assist in the transition
It would be a good gesture if you offered to help the employee with the transition as loss of employment can be financially and psychologically. This can be in terms of writing a recommendation letter.
An employment separation agreement is not a legal requirement; however, it is important to come up with one to protect yourself from claims in the future. You should ensure to include all the terms that you deem relevant. Hence the need to familiarize yourself with how to draft an employment separation agreement.
When the termination is without cause, it is more convincing to sway the employee by providing a severance package. Ensure that you identify both parties, severance, NDA, tax and insurance packages, and any other relevant information in your employment separation agreement. Despite how demanding writing the agreement can be, it is achievable.