A severance agreement is a legal contract between a worker and an employee that outlines the terms and conditions under which the affected worker will receive certain benefits after their employment ends.
Severance agreements can provide financial support during a job transition. However, these arrangements may – effectively – come at a cost. Specifically, they often include legal obligations for an affected employee.
Key considerations
If you are not your own boss and you either are or may someday be subject to the terms of a severance agreement, know that understanding the most common terms of such can help you to better ensure that you are not waiving important rights without proper consideration.
- Severance Pay: The centerpiece of most severance agreements is severance pay, which may include a lump sum or periodic payments.
- Release of Claims: Employers typically require employees to waive their right to sue the company for issues like wrongful termination, discrimination or harassment.
- Confidentiality Clause: Severance agreements often include confidentiality provisions that restrict an employee from disclosing the terms of the agreement or other sensitive company information.
- Non-Disparagement Clause: This term prohibits an employee from making negative statements about the company, its management or its practices.
- Non-Compete and Non-Solicitation Provisions: Some agreements may include restrictions on working for competitors or soliciting clients and employees for a specified period.
- Health Benefits and COBRA: Employers may extend health insurance coverage for a limited time or provide assistance with COBRA premiums.
Severance agreements are legally binding and once signed, they can be difficult to challenge. Before agreeing to any terms, it’s important for workers to seek legal guidance. This effort, along with understanding the common terms in a severance agreement, can more effectively empower workers to make informed decisions and navigate certain job transitions with greater confidence.