A severance agreement (also referred to as termination agreement and separation agreement) is a contract that negotiates the terms ending employment. These agreements usually take place during layoffs, reduction in force, or other terms of involuntary employment separation. Severance agreements are not required by law but are sometimes included in employment contracts.
Offering severance can be a general business practice to protect companies against any legal claims or disparagement from former employees. Severance agreements can also release companies of claims in the event of a dispute or possible lawsuit.
The employer offers monetary and benefits compensation in exchange for the employee releasing the employer of all claims (ie. discrimination, harassment, retaliation, and wage claims).
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