Severance Agreement between Employee and Employer

When a relationship is severed, this means that the ties between parties are cut. A severance agreement, commonly known as a termination agreement, is a document that outlines how the connection between an employer and its employees will be cut. Such agreements can be beneficial to both employers and employees.

A severance agreement can address numerous issues regarding termination of employment. The contract may state how much notice an employer must give an employee before laying her off. It may state the procedure that must be followed before the employee can be fired. The purpose of this type of contract is for both parties to agree what will happen when their relationship comes to an end.

This agreement contains a liquidation clause regarding disclosing proprietary or confidential information. A contract may state the amount of liquidated damages to be paid if the contract is breached. Upon a party's breach, the other party will recover this amount of damages whether actual damages are more or less than the liquidated amount. Courts will honor liquidated damage provisions if:

" Actual damages are hard to determine (e.g., breach of a restrictive covenant).
" The amount is not excessive when compared with probable damages.

If the agreed-upon liquidated damage amount is unreasonable, the Court will hold the liquidated damage clause to be void as a penalty. In such situations, you have to prove the actual damages if the clause was declared to be void.