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Are employment separation agreements enforceable?

An employment separation agreement is like any other contract. It is an agreement in which an employee waives their ability to file a claim against a former employer in the future.

Assuming that the terms of an employment separation agreement have legal validity, meaning they were agreed by both parties and are not made redundant by existing law, then an employment separation agreement is enforceable. 

Here are some general points to keep in mind: 

  • Employment separation agreements are enforceable like any other contract. 
  • If the terms of a contract conflict with existing law, then the agreement is automatically rendered void. The law prohibits certain kinds of agreements. 
  • Some terms of a contract, such as restrictive covenants placed on an individual after the term of their employment, can be challenged in court. 

Let’s take a closer look at employment separation agreements and the circumstances in which they are enforceable. 

What is an employment separation agreement?

An employment separation agreement, also known as a compromise agreement, is a contract between an employer and an employee that is written immediately prior to the employee’s dismissal.

It stipulates that both parties agree to the termination and protects the employer from claims of wrongful dismissal.

Often, organizations incentivize employees to sign employment separation agreements by offering them severance packages. The amount of compensation may be stipulated in the contract. 

Employment separation agreements typically prevent former employees from disparaging the employer, seeking work in a related field, or sharing trade secrets.

Details about the nature of claims that the employee is waiving the right to raise are also included. 

When are employment separation agreements rendered void?

Contract legislation varies between jurisdictions. If the terms of a contract violate the law as it relates to an individual and their former employer, they are likely to be deemed unenforceable. 

In most cases, an employer cannot impose the following constraints (also called restrictive covenants): 

  • Restrict a former employee’s activities if they do not detrimentally impact the employer’s business. 
  • Prevent an employee from working for a competitor in the same industry. 
  • Limit or prevent contact with former clients and business contacts (unless the employer’s business would be negatively impacted). 

In short, if an organization wishes to restrict a former employee’s activities in any way, they must usually prove that they are doing so because of a genuine business interest. 

If your employer has asked you to sign an employment separation agreement and you are unsure how it will affect your future job prospects, seek out the advice of a legal professional.

They will be able to advise you about the best course of action. 

Use PandaDoc to create legally binding employment separation agreements 

PandaDoc provides a suite of tools for streamlining the contract creation process.

These include an extensive library of professionally written templates, workflow automation features, and an intuitive drag-and-drop editor with electronic signature fields. 

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