A severance agreement is an contract entered into between a departing employee and the employer,
by which the employee agrees not to sue the employer for various employment-related actions, and the employer agrees to give some type of extra compensation to the employee (usually money or extended benefits or both). A severance agreement may have any of several different titles, such as severance agreement or severance contract, separation agreement or separation contract, exit agreement or exit contract, but the critical component is the employee’s release of potential claims against the employer.
There are also several specific provisions which must be included in the severance agreement in order for the release of liability to be enforceable. Employees should be extremely cautious in signing any documents which the employer asks them to sign at the time of termination or resignation, and should consult with an attorney, before signing any documents which looks like it might be a release or waiver of any of the employee’s potential claims.