What Should Be Included in a Severance Agreement?

By Thomas McKinney

A severance agreement is a contract that an employee may be asked to sign by the employer upon termination from a job. While severance pay is usually a more prominent feature of a severance agreement, there are many other important terms that can and should be included in these legally binding documents.

What Should Be Included in a Severance Agreement?

Employers, in the absence of a contract or company policy manual stating otherwise, are not required to give an employee severance pay. It is most often up to company discretion, but if severance pay is part of a severance package, it should most definitely be included in the severance agreement. Additionally, and in conjunction with the severance pay, there is often a release of claims clause that the employer includes in the severance agreement. Essentially, this means that the employee will release any claims against the employer in exchange for the severance pay. A release of claims in a severance agreement is fairly standard and completely enforceable.

The amount of severance pay, if any, should be detailed in the severance agreement as should the date of the employee’s termination and any confidentiality rules the employee will be subject to following termination, including that the terms of the release included in the severance agreement be kept confidential. Details regarding benefits and how long the employee will continue to have access to benefits after being terminated should also be included in a severance agreement. If an employer offers group benefits to at least 20 employees, then the employer is required to provide the Consolidated Omnibus Reconciliation Act (COBRA) continuing coverage option through the group insurance plan.

Non-admission of employer wrongdoing and a non-disparagement clause are also commonly included in severance agreements. The first is a denial of liability. The second is a clause most often restricting a former employee from making disparaging comments about a former employer. The clause, however, may also include a provision that prevents the former employer from making disparaging comments about a former employee as well.

To help end the employment relationship on a positive note and also to tie up some loose ends, a severance agreement may include a letter of reference attachment. These kinds of reference letters are often neutral so that the employee can use them for any future job prospects without needing to constantly go back to the former employer for a reference letter. Including a letter of reference attachment to a severance agreement can also help assuage the employee’s fears as to whether their former employer will even give them a letter of reference to provide to potential employers in the future.

There are also a number of standard legal clauses that should be included in the severance agreement including a provision for governing law. In the event of any disagreements arising from the severance agreement, the governing law provision will likely come into play and dictate what jurisdiction’s laws will be controlling in such situations. An arbitration clause may also be included which states that the parties to the severance agreement will waive any right to sue in court and instead use binding arbitration to submit any claims.

New Jersey Employment Law Attorneys

Severance agreements are one of the many important employment law documents. Make sure your agreements are protecting you and your best interests. Talk to the team at Castronovo & McKinney. Contact us today.

About the Author
Tom McKinney is an experienced NJ Employment Lawyer in all major areas of labor and employment law, including discrimination, harassment, overtime violations, wage and hour claims, sexual harassment, wrongful discharge, Title VII, ADA, ADEA, FMLA, LAD, FLSA, and all other employment law claims. Tom is admitted to practice in the States of New Jersey and New York, United States District Court for the Eastern District of New York, Southern District of New York, District of New Jersey, and United States Court of Appeals for the Third Circuit. Prior to forming the firm, Tom practiced at Gibbons P.C. in Newark, NJ. If you have any questions regarding this article, contact Tom here today.