Corporate Separation Agreement: Everything You Need to Know
A corporate separation agreement is written when an employee leaves a company, whether they do so voluntarily or involuntarily. 3 min read
2. Reason for Termination
3. Terms of Severance
4. Release of Claims
5. The Right to Consult an Attorney
6. Non-Compete Clauses
7. Applicable Law and Enforceability
A corporate separation agreement is written when an employee leaves a company, whether they do so voluntarily or involuntarily. Certain terms and conditions should be included in the separation agreement to protect the company against potential legal proceedings, disparagement, or other legal issues that might arise if the employee is part of a protected class.
Terms of Agreement
Most corporate separation agreements have boilerplate language, particularly if the employee leaves voluntarily. However, for employees who are involuntarily terminated, the language might change depending on the reasons why the employee was terminated. Regardless, certain key provisions should be included in any separation agreement.
Included in the agreement are the following:
- The reason for termination.
- The terms of severance.
- Release of claims.
- Right of employee to consult a lawyer.
- Non-compete clauses.
- Applicable laws and enforceability of the agreement.
Reason for Termination
The reason for termination is going to be the cause for termination. Perhaps the employee wasn’t performing well or had several issues regarding his behavior. Whatever the case may be, this initial section will indicate the reasoning for termination.
Terms of Severance
The terms of severance and release of claims are perhaps the most important aspects of the separation agreement, as the terms will specify the amount of severance pay that the employer is giving to the employee. The severance will be a specified amount; however, many employers offer a severance based on a certain number of months.
For example, an employer might offer a severance pay equivalent to six months of pay for the employee. During this time, the employee will continue to receive his salary and benefits as if he was still employed by the company but will not actually be working for the business. After the six-month period, he will stop receiving such benefits and salary from the company.
Release of Claims
The release of claims is simply a promise that the employee releases all legal claims against the employer that are currently pending. For example, assuming the employee currently has a legal suit against his employer for any reason, the release of claims clause in the separation agreement can indicate that the employee is releasing the employer of its liability, and therefore, the employee is agreeing that he will not bring a lawsuit against the employer for such reasons.
The Right to Consult an Attorney
Not that this is different from the employee having a right to consult an attorney due to the actual reasoning for termination. If the employee feels as though he was wrongfully terminated, he can, in fact, consult an attorney to see if the termination was legally justified. If not, the employee can bring a legal suit for wrongful termination.
Non-compete clauses are also very popular in separation agreements. Such language will generally indicate that the employee cannot work for another competitor located within a certain geographical area for a specified period of time. An example of this would be an employer that operates as a technology company preventing any employees who leave to work for any one of its competitors located within a 15-mile radius of the employer’s offices for a period of six months to one year. Most confidentiality clauses are justified and appropriate; however, a confidentiality clause might be held invalid if it is so unfair in its terms that it would prevent employees from gaining employment after leaving the company.
Applicable Law and Enforceability
The separation agreement will also include language regarding the applicable law and enforceability of the contract. Since the separation agreement might not include the element of consideration, the contract itself should include language specifying that the employee has read all terms and provisions identified in the agreement and understands his rights and obligations under the law. Furthermore, by signing the agreement, the employee has now consented to the terms, and any actions taken by the employee that contradict what is stated or required under the contract could be considered a breach.
Other clauses that can be beneficial to include in the separation agreement are references, return of company property, and rehiring provisions. This is especially important for the employee, as he will likely ask the company to provide some sort of positive reference when looking for a new job. Moreover, the return of company property is usually done after the employee is terminated or has resigned. You’ll want to ensure that you protect your company’s assets by having the employee return the property as soon as possible.
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