Severance Package Agreement

What is a severance package agreement?

A severance package agreement is a legally binding document that outlines the rights, obligations, and financial terms associated with the end of an employee’s employment. This agreement formalizes the terms of termination of the employment contract, as well as the employee’s compensation.

The main purpose of a severance agreement template is to prevent possible disputes or misunderstandings following termination of employment relations. The contract records mutual parties’ rights and obligations in relation to confidentiality, non-compete, non-disparagement, payment of severance package, etc.

The parties involved in an employment contract termination agreement are a former employee and employer. It means that the parties are connected to each other due to existing employment relations. Thus, the present template cannot be used between companies or individuals who work based on a service agreement or independent contractor agreement.

What should the severance agreement template include?

Unlike with some other contracts, a sample severance agreement template remains a quite flexible legal document in terms of what could be included. Depending on the parties’ individual circumstances, the document’s final content varies significantly on a case-by-case basis.

Below we made the list of most important provisions you may need to consider including in the termination of employment agreement.

Details of the Parties

The document must explicitly reference the parties involved. Therefore, do not forget to include the employer’s and employee’s full names, mailing or business address, and contact phone or email number.

Besides that, any employment termination agreement template must include the reference to the original employment contract and its date of signing.

Finally, at the end of the document, both parties must put their signatures. Without putting a signature, the document cannot become legally binding.

Important Dates

There are three most important dates that even a simple severance agreement sample should include:

• date of signing or effective date (i.e., the date on which both parties sign this contract);
• date of signing the original employment contract (you can find it in the text of that contract);
• date of termination of employment (i.e., any date the parties agree on).

It is important to remember that all severance benefits and compensations prescribed under the termination of employment agreement become effective only upon termination of employment.

Severance Pay

This is the key element of any severance package agreement template. Severance pay is monetary compensation an employer undertakes to pay to an ex-employee due to termination of employment. You can name it in a different way, including a monetary compensation. However, it is also important to remember that by paying such compensation, an employer does not accept any wrongdoing or any violation of federal, state, or local laws. In fact, it is just a form of “thank you” to the former employee to make sure he or she leaves the company on good terms.

A solid legal severance package example should include:

• exact amount of compensation in U.S. dollars;
• exact date or schedule according to which such compensation should be paid;
• acceptable payment method (e.g., cash, cards).

There is no effective law that obliges employers to make a severance payment. Therefore, parties could omit this clause and replace it with other non-monetary benefits. We will talk about them in the section below.

Non-cash Benefits

A severance contract template for small businesses usually may not include a standard cash bonus. Instead, those contracts may provide other non-cash perks for former employees, including:

• healthcare insurance continuation;
• retirement contribution continuation (usually for one or several years after termination);
• grant of the company’s stocks or shares;
• repayment of unused paid days of annual leave:
• any other benefits upon the employer’s choice (e.g., lifetime discounts for the company’s products or services, etc.).

Release of Claims

This is one of the most important clauses in a severance agreement template. Both parties acknowledge that signing this agreement does not constitute admittance of any liability, wrongdoing, or violation of applicable federal or state laws by either party.

Non-disparagement Clause

Insertion of this provision into the severance pay agreement template serves a dual purpose. First, this clause obliges the employer from making any false or disparaging statement about the employee, their personality, working experience, family situation, etc. Second, on the other hand, this clause refrains the employee from making the same negative statements against the employer.

Usually, inclusion of this clause is highly recommended when there is an ongoing conflict between the parties related to the termination of employment.

Non-compete Obligation

If a former employee position within the company was high and influential to some extent, most employers tend to include a non-compete obligation in a severance agreement template.

It is an employee’s duty to refrain from:

• getting employment in companies that directly compete with a former employer;
• starting a business that directly competes with a former employer;
• buying shares and control over a company that directly competes with a former employer.

The duration of such a duty is usually limited to between 6 and 24 months. If you plan to include this clause in the employment contract termination agreement, consider adding a solid severance package as well. Inclusion of a solid compensation package ensures a so-called legal balance between what the employee cannot do and what the employee gets in return.

Confidentiality Obligation

Every employment termination agreement sample must address an employee’s non-disclosure duty. This is a duty that restrains employee from sharing sensitive information or a former employer’s trade secret with other third parties after the contract ends.

The confidentiality duty is limited in time and usually lasts between 1 and 3 years, depending on the employee’s former role and type of access to confidential information.

Applicable Law

The parties to this agreement must select the laws of a state that should apply for interpretation, execution, and termination of the severance agreement. The selected state could also be reflected in the document’s title. For instance, a California severance agreement template means that the laws of the state of California apply to it.

There are a few common options the parties could choose from when selecting the applicable state law:

• the state in which laws apply to the original employment contract;
• the state where a former employee plans to reside;
• the state where a former employer is currently based or does business.

Who should use this severance agreement template?

This editable severance agreement form could become a helpful legal solution for:

• HR departments, who need to use a solid legal template on a daily basis;
• Small business owners, who deal with HR and administrative tasks on their own;
• Corporate employers, who deal with constant onboarding and offboarding processes within the company;
• Employers handling layoffs and who are in need of a professionally drafted employment termination agreement template;
• Employee who wants a solid legal document with a legal severance package example.

How to customize a simple severance agreement sample at FasterDraft?

To get a fully customized legal document, follow a few easy steps below:

1. Click the “Create Document” button.
2. Answer simple questions in the form.
3. Select a template’s format—severance package agreement template PDF or Word.
4. Make a payment.
5. E-sign, download, print, and use the document.