The severance agreement is an agreement that is associated with the termination of employment of an employee. If you are wondering about the dynamics of this agreement, then this article will definitely help you grasp the understanding of this agreement.

The article will introduce the severance agreement in detail, explore its various clauses, and illustrate how it is beneficial for the employees and the employer.

What Is a Severance Agreement?

The severance agreement is formed at the end of the working term of an employee of an organization. It "severs" the relationship between the employee and the employing organization or whether it is a single employer.

This agreement imposes certain rights and duties onto the two parties involved in its formation. It can be biased towards the employer, as it is mostly created by the employer. The clauses of the severance agreement may change according to the context of its creation.

Basically, the agreement states that a certain individual is no longer an employee of a certain employer. Organizations or the employers will use it when they are retiring or firing a certain employee of theirs.

The severance agreement makes the severance of the relationship concrete and recognizable by law.

What Are the Benefits of Using a Severance Agreement?

There are several benefits of using a severance agreement. The advantages offered by this agreement for the employer and the employee as follows :


  • This agreement makes the severance of the employment lawfully permanent. It doesn't leave room for any ambiguity regarding the status of the employment.
  • It relieves the employer from carrying any sort of liability into the future. The employer is protected by this agreement, against any legal claims made by the let-go employee.
  • The employer no longer has any legal obligations for the let-go employee, apart from the ones mentioned in the agreement.


  • The employee can lawfully get any sort of golden handshake, resolution of tied-up payments, compensation for disputes in the job, etc. This essentially means that the employee can take up legal means to follow up on his workplace disputes.
  • The employee can also use post severance perks, such as insurance and healthcare, a permanent clause of the agreement, and therefore get lawfully compensated by the employer.

What You Should Include In Your Severance Agreement?

There are many things that can be included while forming a severance agreement. Usually, this agreement is formed and presented by the employer. However, the agreement also carries an ample amount of consideration for the employee as well, such as:

  • The agreement should clearly indicate the date from which the termination of the employment is made.
  • The agreement should clearly state the complete name, designation, and the working term of the employee. This can also include the company employee number that is often issued in most organizations. The purpose of this is to remove all if any, ambiguity.
  • The agreement should contain all if any liability or compensation whatsoever, that the employer is to pay to the employee. This compensation is being paid in present because of the outstanding balance liable to the employee by the company.
  • The employer should form a complete and simple agreement, with all the clauses stated in a clear and simple manner. The severance agreement, for the legal relief of the employer, should be fool-proof always.

The employer and the employee must forgo the following things while forming the clauses of the agreement, which are described below:

  • The employer must disclose the perks that are given to the employee after the termination of service. These perks are often disclosed while the employee is working at the employer's company.
  • The employee shall be held accountable by law if he is found to be sabotaging the goodwill gained by his parent company, in any way whatsoever.
  • This includes the basic disparaging of the name of the employer, or any person, legal entities or capital associated with them whatsoever.
  • The employee shall be held liable by various confidentiality clauses as well. The employee shall have no right to persuade the other employees of the let-go company in any way, to leave their employment as well.
  • Moreover, the employee agrees by law to give back any confidential information of the company, as it is, without any damage to it.
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The severance agreement is one of the most widely and repeatedly used documents in the business world. It protects the legal interests of employers and employees at the severance of the relationship.

If you are looking to find a well written and carefully crafted template of the severance agreement, then CocoSign is the place to be. CocoSign offers a wide variety of legal document templates with great legal advice.


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