Browse Definitions:

severance agreement

Contributor(s): Ivy Wigmore

A severance agreement is a contract between an employer and employee documenting the rights and responsibilities of both parties in the event of job termination. 

The contract specifies any severance package of pay and benefits and the conditions under which it will be provided or withheld. Common elements of a severance agreement include: 

  • The amount of any severance pay in lieu of contracted notice period.
  • Any extended benefits, such as healthcare or insurance, and the length of time they will be provided.
  • A non-compete clause forbidding the employee to work for a competitor within a specified time period.
  • An agreement not to file a wrongful dismissal lawsuit. 

Severance agreements are sometimes offered as part of a job contract. More often, they are offered as part of job termination, for example in the case of layoffs. 

This was last updated in July 2013

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