A severance agreement is a contract between an employer and an employee signed at the end of the employment relationship. An employer will offer money in exchange for an employee to sign a severance agreement, often with terms that cost the employee more than is received.
While each severance agreement is different from the next, there are two common clauses employers seek to include. They are (1) waiver of potential legal claims against the employer and (2) non-competition or non-disclosure terms.
Waiver of Claims
A waiver of legal claims clause requires the employee to give up the right to sue their employer. The laws protecting employees are vast and complex; an employee may be sitting on a legal claim worth thousands of dollars without ever knowing it. By offering severance pay, an employer can make a future legal claim go away for pennies on the dollar.
A non-competition clause can limit the employee’s ability to find replacement employment or from engaging in activities similar to the work performed by the employer. By signing a non-compete after termination, you may be endangering your ability to secure new employment.