Severance agreements are crucial in the planning of an employee’s exit from a company. In the UK these agreements have become even more pertinent in light of the policy and employment law changes of 2025. This informs that there is a need to understand the terms of severance agreements to ensure that there is equity and justice in termination for both employers and employees.
What is a Severance Agreement?
A severance agreement is defined as a written contractual document between an employer and an employee delineating how an employee will leave or retire from the firm, This encompasses the retirement payment and the standard of services to be rendered by the employee during and post termination of employment.
As well as other services to be wholly rendered by the employee after ceasing employment. The aim is to resolve controversial issues where both parties have disputes amicably and provide clear terms of disengagement.
Common Clauses in Severance Agreements
Standard clauses range from:
1. Non-Solicitation Clause: This prevents the ex-employee from soliciting the company’s customers or employees for a defined length of time after employment is terminated. This type of clause safeguards business interests and client relationships, where clients consider the most vital clientele.
2. Return of Company Property: Upon an employee’s departure, company property such as electronic devices, documents, and keycards should be returned. This practice prevents the unauthorised disclosure of sensitive information and invaluable assets owned by the company.
3. Benefits Continuation: Some agreements provide the continuation of certain benefits such as medical coverage or even retirement after employment for a defined period. This change in policy allows for transitional relief for the employee.
4. Indemnification Clause: This clause provides for all the responsibilities of the parties for the legal responsibilities, if any, which arise as a result of a dispute within the contract during its duration to avoid any possible litigation burden after the termination of the contract.
5. Governing Law: Determines the area of legal jurisdiction that is relevant to the contract and also the significance of such jurisdiction regarding construction or interpretation of the governing law.
6. Release of Claims: This clause seeks to silence any legal actions that could be taken by the employee concerning constructive dismissal, discrimination, or any other illegal behavior by the employer. The purpose of such clauses is to eliminate any legal ramifications arising out of the employer-employee relationship after the employment agreement is terminated.
7. Confidentiality Clause: This section examines the protections an employer has concerning confidential information, including company trade secrets, strategic growth plans, and specific clauses within separation agreements.
8. Non-Disparagement Clause: This prevents the employee from engaging in any negative comments to the employer and his business and also the reputation of the company after separation. This protects the reputation of the company while facilitating its advertisement.
9. Tax Implications: The direction of the programs in the payment of the direct tax on income and National Insurance is placed inside the severance check, therefore, the employees do not bear any tax liability without cause.
Legal Framework in the UK (2025)
Important changes and developments have appeared in the UK ever since the introduction of the Employment Rights Bill. This legislation tends to focus on and seeks to strengthen the frameworks protective of workers and the abusive phenomena arising in the UK.
Some of the key provisions are:
● Zero-Hours Contracts: The removal of abuse for the so-called zero hours contract without any work is put into the contract, making it mandatory for all employees to get a contract denoting their habitual working hours.
● Unfair Dismissal Protections: Employees can now be able to enjoy day one rights from unfair dismissal which strengthens UK security on employment for various industries.
● Sick Pay and Benefits: Statutory sick pay is now lawfully owed to all workers without exception of low earning employees.
These law changes have placed an emphasis on aligning termination package agreements with compliance and fairness procedures alongside relevancy to recent termination legislation.
Negotiating a Severance Agreement
As part of reviewing a severance agreement, the employees have to:
● Seek Legal Counsel: Navigating the complexities of contract terms can be challenging, consulting an employment lawyer is advisable. For example, Gordon Turner employment lawyers offer expert advice on settlement agreements, ensuring employees fully understand their rights and obligations.
● Understand Obligations: The understanding of the consequences associated with the post-termination restrictions of non-competition or non-solicitation agreements carries great significance.
● Evaluate Compensation and Benefits: Confirm that the market-relevant termination package offered within the severance agreement is reasonable.
Conclusion
Severance agreements are useful in providing a smooth dissolution of the working relationship between a company and an employee. Regarding the emerging sector laws due in 2025, both parties need to be vigilant about compliance, ensuring all elements of the agreement protect the interests of all affected parties.
