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How does a mutual separation agreement work?

A mutual separation contract is an agreement between an employer and an employee. It sets out the term of an amicable separation.

Employees agree not to undertake future legal or disciplinary action after their position is terminated, usually in exchange for a severance package. 

The following points cover how mutual separation agreements work:

  • A mutual separation agreement protects both the employer and the employee. Employers are protected from legal challenges and employees aren’t subjected to drawn-out dismissal proceedings. 
  • Mutual separation agreements typically specify the date of employee termination and include a waiver, in which the employee agrees not to pursue any legal challenges against the employer. 
  • Often, employees will sign a mutual separation agreement in exchange for a severance package (and possibly other benefits like ongoing healthcare). However, this isn’t always the case. 

Let’s explore the points outlined above in a little more depth. 

What is a mutual separation agreement?

The term “mutual separation agreement” is used interchangeably with “employment separation agreement.” Both types of documents are the same. 

A mutual separation agreement is a contract between an employee facing termination and their employer.

By signing a mutual separation agreement, an employee waives their right to bring legal or disciplinary actions against their former employer.

How does a mutual separation agreement work?

A mutual separation agreement essentially states that two parties are separating amicably. It protects the employer from time-consuming and potentially costly legal proceedings. 

The employee also benefits because they avoid having a “black mark” on their resume and can tell future employers that they left their previous job on good terms. 

Mutual separation agreements may also contain further restrictions on a past employee’s activities. These typically include non-disclosure agreements (especially in regards to corporate “secrets”), working in a similar field for a period, making disparaging comments about the employer, and so on. 

However, if terms and conditions conflict with existing law and public policy, mutual separation agreements may be deemed unenforceable. It is not usually possible, for instance, to completely prevent a past employee from working in a particular industry. 

What does a mutual separation agreement include?

Mutual separation agreements tend to be straightforward documents. Most organizations will use a standard template like the one provided by PandaDoc. 

In most cases, mutual separation agreements contain the following sections:

1. Identification of parties

The names of the employer and employee. 

2. Termination date

The date on which the employee will leave the organization. 

3. Severance package

Details of any compensation and other benefits given to the employee. 

4. Waiver

The most important section of a mutual separation agreement is the waiver. It is an outline of activities that the employee is prohibited from undertaking, such as suing a company or beginning wrongful termination proceedings. 

5. Additional terms

Any additional terms, such as requiring the employee to return any property belonging to the organization. 

6. Signatures

An area for both parties to approve the document by affixing their signature. 

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