What is a Separation and Release Agreement? A Guide

A separation and release agreement is a legal document that an employer may offer to an employee who is leaving the company.

The purpose of this agreement is to settle any potential disputes, protect the employer’s interests, and provide some benefits to the employee.

Image of divorced wife
Divorced wife [PHOTO COURTESY OF DUPAGE]

Benefits of a Separation and Release Agreement

A separation and release agreement can benefit both parties in different ways. For the employer, it can:

1.Minimize the risk of litigation by having the employee waive their right to sue for any claims related to their employment or termination.

2.Prevent the loss of clients, staff, or confidential information by imposing some restrictions on the employee’s future activities.

3.Preserve the company’s reputation and goodwill by avoiding negative publicity or bad-mouthing from the employee.

For the employee, it can:

1.Provide a lump-sum payment or other compensation that may be higher than what they are entitled to by law or contract.

2.Extend their health insurance coverage or other benefits for a certain period of time².

3.Offer some assistance with finding a new job, such as outplacement services or positive references³.

 

Common Sections of a Separation and Release Agreement

A separation and release agreement may vary depending on the specific circumstances of each case, but it usually contains some common sections, such as:

Consideration

This section specifies the amount and form of payment or other benefits that the employer will provide to the employee in exchange for signing the agreement¹.

Release of Claims

This section lists the types of claims that the employee agrees to waive and release against the employer, such as discrimination, harassment, wrongful termination, breach of contract, etc.

Confidentiality

This section requires the employee to keep the terms and existence of the agreement confidential and not to disclose any trade secrets or proprietary information of the employer.

Non-Compete and Non-Solicitation

This section prohibits the employee from working for a competitor or soliciting customers, employees, or suppliers of the employer for a certain period of time and within a certain geographic area.

Non-Disparagement

This section forbids the employee from making any negative or derogatory statements about the employer, its products, services, or personnel.

Arbitration

This section states that any disputes arising from or relating to the agreement will be resolved by binding arbitration rather than litigation.

 

Things to Consider Before Signing a Separation and Release Agreement

A separation and release agreement is a legally binding contract that has significant implications for both parties. Therefore, before signing one, it is important to consider some factors, such as:

 The adequacy of the consideration

The employee should evaluate whether the payment or benefits offered by the employer are fair and reasonable in light of their situation.

The scope of the release

The employee should understand what rights they are giving up by signing the agreement and whether they have any valid claims against the employer that they may want to pursue.

The enforceability of the restrictions

The employee should check whether the non-compete, non-solicitation, confidentiality, or non-disparagement clauses are valid and enforceable under the applicable law and whether they will affect their ability to find a new job.

The availability of legal advice

The employee should consult with an attorney before signing the agreement to ensure that they understand its terms and consequences and that they are not coerced or pressured into signing it.

 Conclusion

A separation and release agreement is a common way for employers and employees to end their relationship amicably and avoid future conflicts.

However, it is also a complex and serious document that requires careful review and negotiation.

Therefore, both parties should seek legal counsel before entering into one.

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