Practical Law Severance Agreement

A Practical Guide to Understanding Severance Agreements in Employment Law

In today`s business world, it is not uncommon for employers to offer severance agreements to employees who are being let go or whose positions have been eliminated. A severance agreement is a legal contract between an employer and an employee that defines the terms of separation. It is designed to protect the employer from future legal actions by the employee while giving the employee some kind of compensation or benefits.

Severance agreements can be complex legal documents, and it is crucial for both the employer and employee to understand their rights and obligations. In this article, we will discuss the key aspects of a practical law severance agreement.

What is a Severance Agreement?

A severance agreement is a binding legal contract that outlines the terms of separation between an employer and an employee. It is usually offered to employees who are being laid off, terminated, or whose positions are being eliminated. A severance agreement typically includes the following:

· The amount of severance pay or benefits the employee will receive

· The terms of any non-compete or non-solicitation agreements

· The conditions under which the employer will provide references

· Waivers of future legal claims

· Confidentiality clauses

· Non-disparagement clauses

Key Elements of a Practical Severance Agreement

1. Payment Terms: The amount of severance pay or benefits offered by an employer can vary widely. Depending on the terms of the agreement, an employee may receive a lump sum payment, continued salary or wages, health care coverage, or other benefits. The practical law severance agreement should clearly define these payment terms. Additionally, employers need to ensure that their payment terms comply with state and federal employment laws.

2. Waiver of Legal Claims: The purpose of a waiver of legal claims is to prevent an employee from suing their employer for discrimination, retaliation, or other employment-related issues, after they have accepted the severance agreement. Employers should make sure that the language of the waiver is clear and comprehensive.

3. Non-Compete Agreements: Employers use non-compete agreements to prevent their former employees from working for competitors, or starting a competing business. However, employers must ensure that the non-compete clause is reasonable, and does not unfairly restrict an employee`s ability to find new employment.

4. Non-Disparagement Clauses: A non-disparagement clause prohibits either party from making negative statements about the other party. This clause is designed to protect the reputation of both the employee and the employer, and should be clearly defined in the practical law severance agreement.


Severance agreements are an essential tool for managing employee separations, but they require careful drafting and consideration. Employers and employees need to ensure that their severance agreements are legally enforceable and clearly define the terms of separation. A practical law severance agreement can provide both parties with reassurance and protection as they move forward from an employment relationship. If you have questions or concerns about your severance agreement, consider consulting with an experienced employment lawyer who can provide guidance and support.