5 Ways Employee Separation Agreements Can Protect Your Business


An employee separation agreement is a tool commonly used by large employers to protect themselves against harm upon the termination of an employee. Such documents have to be structured correctly in order to prevent running afoul from the law. Otherwise, they could cause problems.

Does your company use employee separation agreements? If not, there are some compelling reasons for doing so. We have encapsulated some of them below, presented as five ways employee separation agreements can protect your business. If you have any questions about such agreements, you would be wise to consult an attorney.


1. Establishing the Grounds for Separation

Some terminations are the result of a mutual and amicable agreement between employer and employee. Others are the result of disciplinary action by the employer or unhappiness on the employee's end. One of the benefits of an employee separation agreement is that it establishes the grounds for separation. This can be very helpful to your business in the event that a former employer decides to litigate.

Note that a separation agreement can't infringe on an employee's right to participate in EEOC investigations or bring claims of improper conduct against the employer, but it can act as favorable evidence in the event of a claim.


2. Detailing Any Compensation Offered

Next, an employee separation agreement can protect your business by laying out, in detail, any compensation offered at the time of separation. We are talking things like severance pay and extended company benefits here. The thing about compensation is that it has to be recorded and reported in whatever year it is paid out. Including it in the separation agreement provides yet another piece of evidence proving that your company has met its obligations under the law.


3. Establishing Non-Compete Agreements

The last three benefits are all tied to a former employee's behavior after leaving your company. We will start with a non-compete agreement, an agreement that stipulates that the departing employee cannot use the knowledge and skills gained while in your employ to compete against you in the marketplace for a specific amount of time. The benefit here should be obvious. You do not need a former employee going to work for the competition and helping that company with skills and knowledge he gained while employed by you.


4. Establishing Non-Disclosure Agreements

Hand-in-hand with non-compete is non-disclosure. Your employee likely has company information deemed private, confidential, and critical to the success of your company. You can use a separation agreement to stipulate that the employee is not allowed to divulge that information with anyone else. Examples of protected information would include customer lists, company finances, trade secrets, and the like.


5. Establishing Non-Disparagement Agreements

Finally, a separation agreement can stipulate what the employee can and cannot say about your company following separation. The intent here is to prevent a former employee from disparaging your company, thereby injuring your hard-earned reputation. Non-disparagement agreements generally cover things like general employment practices, business practices, the reasons for separation, etc.


Exercise Caution

As good as employee separation agreements are, companies must exercise caution when using them. The SEC, EEOC, and IRS all tend to take unfavorable views of the agreements for their own reasons. Any such agreement your company might draft should be reviewed by an experienced attorney before being used. Furthermore, the agreement should be updated from time to time to reflect changes in the law.

If your company is not yet using employee separation agreements, you might want to look into it. They are very good tools for protecting your company's interests when circumstances dictate employee separation.