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How to Prepare a Severance or Termination Agreement

Author: Michael C. Jacobson, XpertHR Legal Editor

A severance agreement or a termination agreement is a great tool an employer can use to create a clean and mostly permanent break with an employee departing the organization. Even better, for an employer that is not contractually bound to provide severance, there is no legal obligation to offer severance to a departing employee or to have a formal severance package in place. However, a severance agreement can nevertheless be a powerful tool to prevent unnecessary and costly disruptions, protect business interests from vengeful employees and maintain employee morale and productivity during difficult times of transition.

A severance agreement is just like any other contractual instrument in that the parties who sign the agreement demonstrate their intent to be bound by its terms. Thus, the clearer and more direct the terms of the agreement, the easier it will be to enforce later on in a court of law. Importantly, when it comes to disputes over the enforceability of severance agreements, courts will typically view employers as the more powerful, more resourceful entity and the employee as the weaker, more vulnerable party. Therefore, to be successful in disputes over enforcement of these agreements, the employer must go out of its way to ensure the severance agreement is fair, equitable and easy to understand.