When an employee departs from a company either voluntarily or involuntarily, the parties often agree to enter into a separation agreement whereupon the employer pays the employee an amount of severance pay in exchange for a release of legal claims against the employer.
On the one hand a separation agreement can be a fair and amicable way to end an employment relationship. It benefits the departing employee who receives some form of compensation. It also gives the employer peace of mind because the agreement, if written concisely and in detail, will greatly reduce the likelihood of post termination lawsuits.
However, on the other hand, upon signing a separation agreement, an employee may be waiving or resolving valuable claims for substantially less than what he or she is owed. Alternatively, an employer who has entered into an employee separation agreement without legal counsel might find that the separation agreement resulted in severance compensation for the employee that was unnecessarily generous.