Severance Agreement Form
Author: Michael C. Jacobson, XpertHR Legal Editor
When to Use this Form
An employer should use this form if it wants to create a clean and mostly permanent break with an outgoing employee (including an employee who resigns voluntarily and an employee who is terminated involuntarily).
This form will create a contract with the employee and is like any other contract in the sense that by furnishing and signing this document, both the employer and the employee demonstrate their intent to be bound by the terms of the agreement. Thus, the clearer and more direct the terms, the easier it will be to enforce in a court of law should a dispute arise.
Importantly, unless the employer is contractually bound to provide severance, severance agreements and, by extension, severance pay, are not mandatory. Therefore, this form should only be used if the employer is contractually obligated to provide severance or if the employer has determined that providing severance would be beneficial in terms of protecting employer interests after the employee leaves the organization.
Severance Agreement Form
[Enter Employer Name] Severance Agreement
This severance agreement (hereinafter "the agreement") is made and entered into on [Enter Date of Execution], by and between [Enter Employee Name] (hereinafter "the employee") and [Enter Employer Name] (hereinafter "the company").
The company and the employee demonstrate their intent to be bound by the agreement by executing this document. Both the company and the employee do not intend to modify the terms of this written agreement by any conversation, either in-person, over the phone or via electronic communication. The only modification(s) that may be made to this agreement should be done in writing, with both parties to the agreement executing the modification document to demonstrate their intent to modify the agreement. Without an executed modification document, there will be no modifications to this agreement, as it is written as of [enter date of execution].
The company and the employee intend to be bound by all of the terms of the agreement, as follows:
- The employee hereby [resigns from employment/is terminated from employment], effective as of [Enter effective date of resignation or termination]. If the employee is voluntarily resigning from employment, he or she agrees to provide a written notice of resignation to the company no later than the date of execution of the agreement.
- The employee is entitled to "severance pay" or "termination pay" in the amount of [Enter agreed-upon amount of severance or termination pay], which was calculated by [Enter name of individual who calculated the severance or termination pay].
- This "severance pay" or "termination pay" is subject to the normal amount or rate of withholding for any applicable state or federal taxes and subject to any applicable fees. [Enter Employer Name] makes no representation that the "severance pay" or "termination pay" will be "tax free" or otherwise shielded from applicable taxes and fees.
- The employee is also entitled to supplemental severance benefits over and above the "severance pay" or "termination pay" including [enter any additional agreed-upon severance or termination benefits that have value such as extended health insurance coverage, a promise to author a positive reference letter, etc.].
- The company, its employees, supervisors, directors and Human Resources processionals expressly do not admit any liability for past incidents or transgressions which did or may have contributed to the employee's decision to voluntarily resign or the company's decision to terminate the employee from employment, whichever is applicable.
- Likewise, the employee signing this agreement expressly affirms that he or she has not hidden, withheld or refused to divulge any information that would be pertinent to the agreement, including any past workplace incidents that may expose the employer to liability. The employee has been completely forthcoming with his or her description of the events that occurred in the workplace and has not failed to divulge any relevant information as of [enter date of execution].
- In exchange for the agreed upon "severance pay" or "termination pay" and supplemental severance benefits, if any, the employee specifically and affirmatively agrees to the following conditions:
- Confidentiality: The employee agrees to keep the specific terms of the agreement confidential, including the amount of severance pay, the amount or nature of supplemental severance benefits, if any, and the employee's agreed-upon "consideration" provided to the company in exchange for the severance agreement.
- Return of Company Property: The employee agrees to return any company provided property to the company by the date of execution of this agreement. This property includes, but is not limited to, smart phones, cellular phones, laptop computers, tablets, key cards, key fobs or any other devices or objects that were provided to the employee in connection with his or her employment, but for which the company retains ownership rights.
- Covenant Not to Sue: The employee agrees not to sue the company, the employer or any of its individual employees in local, state or federal court to pursue any claims that may have arisen from the employee's experience working for [enter employer name].
- The employee retains the right to pursue administrative claims against the company including, but not limited to, enforcement actions by federal agencies like the Equal Employment Opportunity Commission (EEOC). The employee is not permitted to contract away his or her right to pursue enforcement actions by the EEOC. This restriction applies only to civil claims that may be filed in court directly by the employee, acting on his or her own behalf.
- Covenant Not to Compete: [enter specific terms of non-compete clause here, being mindful of unreasonable restrictions on length of time, manner of competing and distance in relation to the company and its satellite offices, if any].
- Promise to Review with an Attorney: As part of the agreement, the company will furnish this document to the employee to review for a period of up to [enter period of review] days. During that time, the employee promises to consult with an attorney regarding the agreement or, if the employee is not able to consult with an attorney during this time, to give the agreement an appropriate amount of thought and consideration.
- The employee agrees and acknowledges that he or she has been advised by the company to seek the advice of an attorney pertaining to this agreement before signing it.
- The employee agrees and acknowledges that he or she has actually sought and received the advice of an attorney or affirmatively and voluntarily chose not to obtain such advice.
If HR professionals author these documents independently, or even use the XpertHR template for creating a severance or termination agreement, it is absolutely imperative that they consult with in-house or outside counsel before actually providing the document to the employee. This document is a contractual agreement, which binds the employer to the terms and conditions of the agreement.
It is also considered good practice to conduct Exit Interviews with outgoing employees, be they resigning employees or terminated employees, as part of the severance negotiation process. In this interview, the employer can attempt to collect some valuable insight from the employee before he or she leaves the company, and may assure the employee that the information provided will be considered and studied to improve relationships or working conditions after the employee leaves the organization. This creates good will with an outgoing employee and may assist HR or the employer at large with the severance negotiation process.
If the employer intends to reach a severance agreement with an employee who is 40 years of age or older, then the severance agreement must be in compliance with the Older Workers Benefits Protection Act (OWBPA), which imposes specific requirements on employers regarding the nature and quality of the agreement, the amount of time the employee should have to consider the agreement and/or review it with an attorney, and the types of claims that the employee is permitted to "waive" in exchange for severance.
Employers should not combine the Severance Agreement Form with any other types of contractual agreements by and between employers and employees. It is important that employees consider severance agreements or any form of "termination" agreement to be a privilege. In true at-will employment situations, severance pay is not required, meaning the employer provides it to the employee only as a chosen benefit or a contractual obligation.
Some employers combine severance agreement or termination agreement contracts with arbitration agreement contracts, for example. This is not considered good practice because the employee should be made to acknowledge each of those agreements separately in order to give each their due weight and consideration under the law. Courts routinely invalidate severance agreement contracts if they are too complicated or too broad in scope.