Severance Agreement Format

When and how to use this letter

Offer a severance agreement when you want a clean, final break — typically in layoffs, mutual separations, or exits of senior employees. The economics are simple: severance above the legal minimum in exchange for a release of claims. Before drafting, decide the package deliberately — a formula like one month per year of service plus notice pay is common — because inconsistent packages across similar exits invite discrimination claims.

Give the employee genuine time to consider the agreement and encourage independent legal advice, especially for senior or long-tenured staff. A release signed the same day it is presented, without time to reflect, is the first thing a challenger attacks. Twenty-one days to consider is a widely respected benchmark; even where not legally required, it signals fairness.

Draft the release carefully: it should cover employment-related claims while carving out rights that cannot be waived, such as accrued statutory benefits. Include the practical terms employees actually care about — payment date and method, continued benefits, reference policy, and return of property. One non-obvious tip: add a non-disparagement clause that binds both sides, not just the employee. Mutual non-disparagement costs the company nothing and removes the employee's biggest hesitation about signing.

Keep the tone respectful throughout; this document is often the employee's last impression of the company. Pay on the stated date without fail, issue the experience and relieving letters promptly, and file the signed agreement permanently. If the employee declines to sign, they still receive their statutory minimums — the severance agreement only governs the extra package.

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