An Employer's Guide to Severance Agreements

Severance agreements can be valuable risk-management and employee-relations tools for employers. A business may offer severance following a difficult separation, as part of a reduction in force or layoff, or to recognize the services of a longtime employee. In exchange for severance pay or other benefits, the employer will typically require the departing employee to accept certain obligations, and release potential legal claims.

In this video, Matt Lockaby explains what employers should consider when preparing a severance agreement. Although the appropriate terms will depend on the employee, the circumstances of the separation, and the employer's objectives, most severance agreements include several common provisions:

• A clear description of the severance pay, benefits, or other consideration the employee will receive;
• A properly drafted waiver and release of employment-related legal claims;
• Confidentiality, non-disparagement, and other provisions; and
• Any additional terms needed to address the circumstances of the employee's departure.

Employers must also ensure that severance agreements comply with applicable employment laws. Additional requirements may apply when an employee is asked to waive age-discrimination claims, particularly when the employee is age 40 or older or the separation is part of a group layoff. Overly broad waivers, confidentiality clauses, non-disparagement provisions, or restrictive covenants may also create enforceability concerns.