A severance agreement is an agreement between an employee and their employer regarding the terms on which the employee will leave their position. Severance agreements are different than severance pay, which is the payment of all earned but as yet unpaid wages that an employee has accumulated at the time of their termination. There are circumstances under which an employee is given additional compensation to sign a severance agreement. In order for these contracts to be valid, they must be entered into willingly. They must also not be under duress, be threatened or blackmailed into signing the agreement, or not misinformed about the terms.
Typically, this type of severance agreement is received as a result of retirement or being laid off, but it is sometimes provided when an employee resigns. An agreement is drawn between two or more people, typically the employee and their employer. In the agreement, specifications are made as to how the employee will conduct themselves with regards to their former employer, and in turn the business agrees to compensate the employee. Compensation can include, but is not limited to, additional pay, payment for earned but unused vacation time, health insurance, stock options, and 401k benefits.Employers use severance agreements to safeguardagainst being sued by former employees, or having them seek further compensation after they are no longer with the company. They are also used to ensure that an employee will not share private information about the company with competitors post-employment.
In some cases, additional severance pay is included in the hiring contract (e.g. an employee will receive one-month’s pay at the end of their employment) and coercing an employee to sign an agreement not to sue for this compensation is unlawful; the money is already owed to the employee and an employer has to pay it regardless of the conditions being presented at termination. It is important that you understand the terms of the contract that you are signing so that you do not unintentionally breach the contract. Seeking the advice of an attorney is advisable, and will ensure that you are getting the most out of your severance package while not ending up in legal trouble.