The One Document You Should Consider Having Signed Before Terminating an Employee

by Shannon Middleton

Firing or terminating an employee is a natural part of business. It can be uncomfortable, awkward, and certainly not fun. But it can also get a whole lot worse, especially if a former employee brings a lawsuit against you. It can not only be costly, but it can cause unrest among your other employees and customers.

So how do you best protect yourself from lawsuits from terminated employees? Employment separation and release of claims agreements.  We’ll call them separation agreements.

Separation agreements are agreements between an employee and an employer whereby in exchange for consideration, an employee agrees to release most of his or her claims against the employer (some claims cannot be waived).

Of course, a separation agreement isn’t always needed, but there are often circumstances when it should be highly considered. Here are three instances when you, as the employer, should strongly consider one:

  1. When there’s a potential threat of lawsuit by the employee. Evaluate the circumstances surrounding the termination and consider which protected categories the employee fits in under state and federal law. For example, protected categories include:
    • race;
    • gender (including same sex discrimination, transgender discrimination, and sexual harassment);
    • religion;
    • age (40 or over);
    • disability (any known medical issues, physical or mental health issues, pregnancy, etc.); and
    • if the employee is currently on or recently has taken a leave of absence or Family and Medical Leave Act (FMLA) leave.

Whether the protected categories apply to your business generally depends on the number of employees.   

  1. You want the employee to agree to a non-disparagement clause. Some employees may be angry, and you may be concerned about the employee spreading rumors or bad publicity to customers or suppliers. Through a non-disparagement clause, the employee agrees not to make any defamatory, disparaging, or derogatory statements, either orally or in writing, about your company, its officers, agents, or employees, or its services or business practices.
  1. You want the employee to agree to a non-competition/non-solicitation clause. A non-competition clause in a contract prohibits the departing employee from working in a similar job with a competing business in a defined geographic area. A non-solicitation clause in a contract prohibits the departing employee from soliciting former customers that the employee worked with, as well as from soliciting other employees to come and work for the competing business. Non-competition and non-solicitation clauses are strictly construed against employers so they must be carefully and narrowly crafted to be enforceable.

Sound like something you might need? Chances are -- at some point as an employer -- it will be necessary to draft a separation agreement, and we’d recommend talking with an employment attorney as there are several issues to consider when drafting the agreement. Issues such as non-waivable claims, governing law, consideration, accrued PTO/vacation, specific provisions to waive an age claim under the Age Discrimination and Employment Act, and the scope of the non-competition and non-solicitation clause can all play a major impact on the effectiveness of your agreement.

If you have any questions or are in need of an employment separation agreement, please give me a call at 765.423.7900 or send me an email at