Contact Us (410) 558-1915

A General Overview of Employment Contracts & Severance Agreements

A general overview of Employment Contracts & Severance Agreements

Navigating the world of Employment Contracts and Severance Agreements can be a complex and intimidating process for both employers and employees. In essence, you are deciding the terms of a legal agreement that will govern your working relationship – and every detail matters.

Here we unpack the basics of Employment Contracts and Severance Agreements, so you can make sure both parties are on the same page when it comes to expectations.

What is an Employment Contract?

An Employment Contract is a legally binding agreement that outlines the terms, conditions, and scope of an employee’s job. It also sets out the duties and responsibilities of both employer and employee. Employment Contracts typically include:

  • Compensation – salary and any benefits such as vacation time, sick days, or health insurance.
  • Job duties – the responsibilities of the employee.
  • Confidentiality agreement – an agreement that prohibits employees from sharing confidential information.
  • Termination policy – how either party can end the employment relationship.

The role of an Employment Contract is simple: to protect both parties by clearly defining their rights and responsibilities.

What is a Severance Agreement?

A Severance Agreement is an arrangement that usually occurs at the end of an employment relationship, when one or both parties want to part ways and resolve any potential outstanding issues between the parties.  Severance Agreements typically include:

  • Payment – a payment from the employer to the employee in exchange for release from liability and the adherence to other restrictions.
  • Non-compete clause – a clause prohibiting the employee from competing with their former employer for a certain period of time and within a certain scope (usually geographic).
  • Confidentiality agreement – again, an agreement that prohibits employees from sharing and/or using certain confidential/proprietary information and/or limiting the disclosure of the terms of the Severance Agreement. NOTE that these clauses may often be unenforceable as drafted and must be drafted to adhere to the latest controlling legal decisions and laws.  For instance, an employer cannot stop you from cooperating with regulatory matters or other regulatory complaint processes.
  • Non-disparagement clause – a clause prohibiting the employee from making certain types of negative comments about their former employer. NOTE that these clauses may often be unenforceable, even though the employer adds them into the document.
  • Nonsolicitation clause – a clause the prohibits the former employee from enticing former employees, customers and/or contractors away from the Employer for a length of time and/or within a geographic reason.

Even if a job termination is not problematic, if you are an employee, care should be taken to fully understand what claims you may be releasing and how you are limited by signing a Severance Agreement.  Severance Agreements can be an effective way to settle disputes quickly and fairly with both parties protected, but it is critically important that they are drafted clearly and are legally enforceable.

Who crafts the documents?

Both Employment Contracts and Severance Agreements should be tailored to the specific situation, and the employer is responsible for drafting them or having them drafted by a lawyer or legal firm.

Legal matters are nothing to be trifled with; incorrect wording or omissions can create a whole host of legal and financial problems down the line. That’s why it is important to seek professional help when drafting an Employment Contract or Severance Agreement.


It is important that you understand what you are giving up and what you are agreeing to before you sign either an Employment Contract or Severance Agreement.  Do not assume that the document is a mere formality.  Employers have employees sign them for a reason and if the Employer believes you have violated the agreement, they may take action against you.

Must-haves in Employment Contracts and Severance Agreements

Regardless of the specifics, there are certain must-haves in both Employment Contracts and Severance Agreements. They should include:

  • A clear statement of purpose – what is the agreement meant to achieve?
  • Terms that are clear and defined – there is often no way to avoid legal terms in an agreement, but setting out the terms in a clear and straightforward manner will avoid ambiguity.
  • Adherence to relevant laws – make sure that the agreement complies with local, state and federal laws.
  • Signatures – both parties should sign the document. In most instances, both parties must sign a document in order for it to be legally binding.

If you are an employee, be aware that the restrictions included in Severance Agreements have serious legal implications and can limit you in subsequent employment opportunities and business endeavors.  If an Employer believes you have violated the Employment Contract and/or Severance Agreement, it may seek damages, recoupment of the severance amount paid to you, seek to stop you from competing with it, and ask the court for other relief.  For that reason, you should always seek legal advice if you are in any doubt about the terms of a Severance Agreement.

For the Employer, a well-written and solid Employment Contract and Severance Agreement will provide you protection from what the law recognizes as a protectable interest.  In short, these agreements are helpful to both the Employer and the Employee if they are fair, clear, and address protectable interests.

Common causes of legal employer-employee disputes

The unfortunate reality of Employment Contracts and Severance Agreements,  disputes are often their cause or outcome.

Non-payment of wages and wrongful termination are two common causes of employer-employee disputes. Other possible causes include discrimination, whistleblowing, breach of contract, and failure to provide a safe working environment.

Employees can also be at fault, of course; they may fail to meet their job responsibilities, violate the terms of a non-compete agreement, or steal company property.

A well-drafted Employment Contract and Severance Agreement ensures that both parties understand the rules and their rights, making disputes less likely. However, if a dispute does arise, it is important to seek legal advice as soon as possible in order to protect your interests.

Help is at hand

Here at the Law Office of Ruth Ann Azeredo, LLC, we have tried and tested experience and expertise in drafting, reviewing, and negotiating Employment Contracts and Severance Agreements.  Further, we have brought actions and defended actions concerning Employment Contracts and Severance Agreements.

Make the most of our legal expertise and get in touch with us today to protect your rights.

More To Explore