What is a severance contract?

Employment Law Malta

A severance contract, also known as a severance agreement or separation agreement, is a legally binding document that outlines the terms and conditions under which an employee will leave the job. These agreements are typically used when an employee is terminated or laid off by the employer, although they can also be used in other situations, such as when an employee resigns.

The primary purpose of a severance contract is to protect the interests of both the employer and the departing employee. It typically includes various provisions that may cover the following:

Confidentiality Agreement: The agreement may include provisions to maintain the confidentiality of the company’s trade secrets and other sensitive information.

Severance Pay: The agreement may specify the amount of money or benefits the employee will receive upon separation. This could include salary continuation, a lump-sum payment, or other financial compensation.

Non-Disparagement Clause: This clause often prohibits both the employer and the departing employee from making negative or disparaging comments about each other.

Non-Compete and Non-Solicitation Clauses: These clauses may restrict the employee from working for a competitor or soliciting the employer’s clients or employees for a specified period after leaving the company.

Release of Claims: The employee typically agrees not to sue the employer for any claims related to their employment or termination in exchange for the severance package.

Return of Company Property: This clause states that the employee should return any company-owned materials, equipment, or documents.

Health Benefits and Insurance: Details regarding the continuation of health insurance or other benefits, if applicable.

References and Recommendations: The agreement may outline how the employer will respond to reference requests from prospective employers regarding the departing employee.

It’s important to note that the specific terms and conditions of a severance contract can vary widely and are negotiated between the employer and the departing employee. Legal advice is often recommended for both parties to ensure that the agreement complies with relevant laws and regulations and adequately protects their respective interests. In many cases, the employee is given a certain amount of time to review and consider the agreement before signing it, and they may have the option to consult with a lawyer.

Sciberras Advocates holds exceptional expertise in employment and labour law, including aspects such as drafting employment and severance contracts, the sale of businesses and its impact on employees’ future, cases of unfair dismissal, employment discrimination, workplace harassment, redundancy situations, employees’ rights for claims, and an array of other related issues. For assistance in employment and labour law, visit our practice area page: https://sciberras.legal/practice-areas/employment-labour-law/.

This article is for information purposes only and should not be construed as legal advice.

Article written by Ms Charlene Sciberras, B.A. (Hons), guest writer, is a marketing and business administration specialist with a special focus on corporate, accounting, and legal matters.

Sciberras Advocates founded by Dr Adrian Sciberras, is a law firm based in Malta. The firm prides itself to be multi-disciplinary, innovative and flexible in order to meet the changing times and any challenges in the local and international legal scenario. No matter what private or corporate complex demands are called for, Sciberras Advocates offers practical and cost-effective legal solutions to achieve your desired results. You may reach Sciberras Advocates by phone on +35627795222 or via email on [email protected].

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