Home Finance Know Why You Need Severance Agreement

Know Why You Need Severance Agreement

Source: freepik

If you have been recently terminated or planning to leave your current job, then there is something you must know to cope up with your financial concerns. Depending on the consequences of your current needs, you might be curious to find out if you are eligible for a severance agreement or not. To do that properly you can check out employeejustice.com. Well, you don’t have to worry anymore because I am here to clarify all your confusion and remove your dilemma once and for all.

Read more below to find out about the severance agreement and when it is right for you to go for it.

What Is A Severance Agreement?

Source: freepik

Simply putting in words, a severance agreement is a contract between an employee and an employer.
This contract is a detailing document about the compensation package an employee would get in exchange for his termination by the company.The severance agreement contains the guidelines and rules for an employee who is terminated from his job.

To explain a bit further, this document outlines all the employee and employer’s rights and responsibilities, taking into account when an employee┬áloses his job due to layoffs or some other circumstances.
It summarizes the benefits an employee could receive and how he could be eligible for those advantages once he is terminated from his job.

A severance agreement template should include full details of employee rights, like how much the employee will be paid after his termination and until when he is eligible for the benefits given by the company.

Severance Package

Source: freepik

Most job hunters are aware of how to negotiate the benefits and salary with their employer when they are hired, but one thing that they might not know is that they can also negotiate the terms and features when they part ways from the company. In organizations where things are quite regulated, employers offer a severance agreement to the employees that gives the details about financial plans for when an employee leaves the company.

If you are an employee, you can negotiate the terms in this agreement considering the cash and benefits you would need to survive after termination and how you would conduct yourself during discussions with your boss, and whether you would need legal help. Negotiating the terms and conditions in this agreement will help you smoothly transfer to a new job without the financial pressure and all the stress of money matters.
Although severance agreements are not required by law, they are still offered by many employers to be competitive in the industry or as a gesture of goodwill by the organization.

Why You Need Severance Agreement In Place?

Source: freepik

One of the essential purposes of a severance agreement is to prevent employees from filing a wrongful lawsuit for their termination against your company.

Other than that, there are also several other reasons for a company to have a severance package set. Some growth-oriented companies set the severance package as their standard company terms and services.
While on the other hand, most businesses also draft severance packages to cut a strong deal with their high-level employees. Well, not just that, severance agreements also have many positive impacts on both the company and the employees working for it.

For example, it develops a sense of goodwill with the terminated employees even after they have left.
It also turns out to be a big help for private companies to protect their company details, processes, and essential data.

Here are some of the positive results that you can get from a severance agreement:

1. It protects the private companies’ critical processes, details, and data.
2. It is a way to show respect to the remaining employees in the organization.
3. It helps to foster a sense of goodwill with the terminated employees.

Isn’t that great? Now the only question that must still be circling your mind would be, “In which circumstances is severance agreement applicable?”. So, without any further delay, let’s unwrap the truth behind this question as well.

Read more below to find it out.

Circumstance To Offer Severance

Source: freepik

One thing to ponder here is that you do not have to draw up a severance agreement every time someone leaves your company. Why am I saying this? Well, the reason behind starting this term is that there are only some specific reasons when you have to offer a severance package to an employee of yours.For example, When you have to fire someone for any misconduct against the company’s policy, a severance package might seem like awarding lousy behavior.

This is why to deal with such sensitive situations, here are the conditions when a severance agreement is appropriate.

1. Company reconstructions
2. Layoffs
3. Eliminating a department
4. Bad fit for company culture or a specific role.

One of the primary examples of the right situation, when a severance agreement suits the best, is when a top manager of the company is terminated. In this case, the employer might need a severance agreement that can contain conditions like the manager can not work for the direct competitors of the company in the existing market for the next six months of his termination.

This way, the severance agreement helps to protect the critical operations of the company during the job transition time period of the employee. This accord is also famous for conditions when the employer is worried about a harassment or discrimination lawsuit and is willing to pay for some advantages in exchange for a requirement that the employee will not sue the company.


To put it in a nutshell, a severance agreement is a safe document for both the employee and the employer working for an organization.

It contains terms and conditions in case of any unforeseen circumstances and termination of an employee and the benefits it would get as compensation from the company.

For organizations, a severance agreement is a safety shield which they can use to protect their rights, important details and data and to save them from any kind of false lawsuit.
This complex legal document contains all the important details that are helpful for the employer and employee when one of them decides to part ways.