Employment termination agreements are agreements between employee and employer. They end an existing employment contract, so long as the termination agreement is mutually agreed upon.
If you plan to use an employment termination agreement, it needs to follow all applicable state laws and regulations. That can be challenging when you’ve hired workers in more than one state: you’ll need to research to ensure that the employee termination agreement is legally enforceable in their location. Fortunately, SixFifty can help employers generate compliant, customized documents.
What is a termination of employment agreement?
An employee termination agreement is an alternative to simply firing an employee or an employee quitting, which are one-sided actions. Both parties are entitled to negotiate the agreement for favorable terms.
Employers might use an employment termination agreement to ease an employee’s transition rather than abruptly firing them. It’s also an opportunity to ask the employee to agree to certain terms, such as non-compete, non-disclosure, or non-disparagement clauses. Employees might request severance, extended healthcare coverage, neutral references, or termination of previous agreements made with the employer, among other reasonable provisions.
Finally, an employment termination agreement might also provide that either or both parties waive any employment-related claims. However, since this can get into sticky legal territory, it’s important your agreement complies with all applicable state laws.
Is a termination agreement legally binding?
A termination agreement is legally binding. It’s a formal contract, so both parties are free to negotiate, enter into the agreement, or reject it. Because it’s a contract, there must be consideration—unlike one-sided termination or quitting, where only one party receives an advantage.
Consideration is what one party receives in exchange for agreeing to the proposed terms. For instance, if an employer were to ask an employee to sign a termination agreement which prevents them from working for competitors, they would need to provide monetary compensation in a severance package.
“Reasonable” consideration varies depending on state law and how the consideration compares to what the other party is asking. A termination agreement that essentially prevents someone from working in their field for an extended period would need to provide enough consideration that it’s not considered unconscionable. For example, that could be a year’s worth of salary and healthcare coverage in exchange for not working with competitors during that time.
Every termination agreement is different, however, and the exact contents will depend on what each party is hoping to gain.
What is an example of a termination agreement?
This sample employment termination agreement from U.C. Berkeley demonstrates the key concepts above. In this agreement, the employee is asked to refrain from suing the employer and end their employment on a certain date. It also includes provisions for severance pay, unemployment benefits, and housing. There are also penalties if the employee doesn’t comply with the terms of the agreement.
Note that the agreement makes reference to California law. Depending on which state your employee lives and works in—and the current status of that state’s employment laws—your employment termination agreement might look a lot different. Similarly, the terms of your agreement will largely depend on what makes sense for that particular situation. For instance, you probably won’t need a housing provision if the specific job and company don’t offer employee housing.
Create your own employment termination agreement with SixFifty
If you’re planning to draft an employment termination agreement, avoid the temptation to copy and paste any agreement you find online. There’s no guarantee that templates will meet all state employment law requirements—which could put your company at risk. On the other hand, researching state employment laws or hiring an attorney to draft an agreement from scratch is time-consuming and expensive. Fortunately, there’s a better way. SixFifty can help you create compliant employment documents and preserve your peace of mind.
SixFifty’s Employment Docs platform helps organizations generate a top-tier employee handbook and employment agreements that comply with the latest employment laws in every state to save you time and money. Our documents support employers in every stage of the employment lifecycle—from hiring to managing to separation.
Our legal experts closely monitor employment legislation across the nation, so employers can rest easy knowing that their employment termination agreements will always be current, no matter how the laws change. Ready to learn more? Schedule a demo today!