What Is an Employee Separation Agreement?

An employee separation agreement is a contract that a company can present to an employee when he is terminated, laid off, or quits. It offers various benefits in exchange for the employee’s guarantee concerning future behavior and his promise not to sue the company for any reason. This type of agreement is often used with professional employees who have broad access to a company’s strategic and easily transferable assets or by a company that relies heavily on maintaining a good business reputation.

Controlling the way in which employees leave a company is an important part of human resources management. Former employees can be a significant source of future liability, particularly if the parting is acrimonious. A disgruntled employee has years under various legal statutes to sue a former employer for perceived slights, such as discrimination, sexual harassment, or intentional infliction of emotional distress. Separated employees can steal clients or take confidential business information and use it for unauthorized ends. They can directly compete with a former employer, entice key current employees to defect to a new company, or malign the company in the public eye by making scurrilous claims about the working conditions, detrimentally impacting sales and the ability to attract the best talent.

A company can attempt to mitigate these possible negative outcomes by using an employee separation agreement. This document is a legally binding contract that offers the employee valuable benefits in exchange for general releases of liability and certain warranties regarding behavior. Some types of positions hire people pursuant to an employment contract which is signed at the outset of employment and addresses terms and benefits in the event of a separation. Most employees are hired at-will, however, and are not guaranteed any benefits upon separation. An employee separation agreement would be used as an option to negotiate terms and benefits for a worker that had no other guarantees.

An employee separation agreement will typically offer a severance package that can amount to months of pay while the employee is looking for new work. The company can also offer to keep the employee on the company’s health plan and pay the premiums for a certain time period. It can also promise to provide the employee with a favorable reference and pay out any accrued vacation or sick time.

In exchange, the company will ordinarily require the employee to at least provide a general release from liability and a promise not to bring any claims or lawsuits on any matter whatsoever against the company or its employees. The contract can also require that the employee never help other employees to sue the company by being a witness or providing other evidence. Additional contract options can warrant certain behavior, such as a guarantee that the employee will keep company secrets confidential and will not poach or incite current employees to leave.