A severance agreement is a contract between you and your employer that outlines your respective rights and responsibilities in the event of termination, and sometimes under a voluntary resignation or early retirement. The severance agreement typically sets forth the specific pay and benefits as well as the terms and conditions for which they will be provided or withheld. It is always a good idea to take at least a day to review a severance agreement before signing. If you have concerns, you may want to seek the advice of an employment attorney before agreeing to the terms of separation. A severance agreement may include:
- Compensation is the amount of pay, which can be based on the term of employment or the expected period of unemployment.
- Benefits typically include an extension of medical and dental insurance for an expected period of unemployment. You may negotiate to remain under the company plan at the employee rate during your severance period. Continuation of health coverage will be provided under COBRA for United States companies with more than 20 employees. Consult the U.S. Department of Labor FAQs on COBRA for more information. Life insurance and disability policies usually cease with employment.
- Company property can include both tangible items (company car, cell phone, computer, etc.) and intellectual property (e.g. patents, customer lists, proprietary information, etc.). You may be able to negotiate a low-cost purchase of tangible items such as your cell phone or laptop. Consider the value and ownership of intellectual property in your negotiations as well.
- Non-Compete obligations or confidentiality agreements may already be in place or they may be added or altered as a condition of the severance package.
- Company-sponsored education costs or reimbursement in exchange for a specified length of employment.
- Relocation if you are in an overseas assignment. Tax equalization following these assignments is also typically covered and should be discussed fully with a qualified tax accountant.
- Departure announcement and agreed upon reference statement which could be critical in your job search. To gain control of the communications surrounding your departure, you may wish to draft these statements yourself. Obtain agreement that the reference statement be placed in your personnel file to be used for all inquiries.