A severance agreement is a contract. Your employer offers you money or other benefits and, in exchange, asks you to give up something — usually the right to sue. If you are being let go, you may be handed a severance agreement and asked to sign it quickly. This is the single most important document you will sign in the termination process, and it is worth understanding before you do.
There is no federal law requiring most employers to offer severance, and most employment is "at will" without a contractual right to severance pay. The existence of a severance offer usually means your employer wants something from you — typically a release of legal claims. Sometimes the release is routine; sometimes it is hiding real value you are giving up.
Here is what you should understand about severance agreements:
- They are negotiable in most cases
- The release language often covers more than employees realize
- There are specific legal rules (especially for workers over 40) about how the release must be presented
- Speed pressure is usually a negotiating tactic, not a legal constraint
- Getting professional advice before signing is almost always worth the cost
When you might receive a severance offer
- Layoff or reduction in force (RIF)
- Position elimination due to restructuring
- Termination without cause where the employer wants to limit legal risk
- Negotiated exit of a senior employee
- Some contractual severance rights under an employment agreement, offer letter, or executive plan
- A few states and municipalities require severance in specific situations (e.g., New Jersey WARN Act severance)
Federal baseline
Several federal laws apply to severance agreements:
- Older Workers Benefit Protection Act (OWBPA): If you are 40 or older, a severance agreement that releases age discrimination claims must give you 21 days to consider (or 45 days in a group layoff), 7 days to revoke after signing, written notice advising you to consult an attorney, and plain-language disclosures about the group in a RIF. Releases that do not comply are unenforceable as to ADEA claims.
- WARN Act: The federal Worker Adjustment and Retraining Notification Act requires 60 days' notice of mass layoffs or plant closings by employers of 100+ employees. If notice is not given, employees may be entitled to pay in lieu of notice. Severance on top of WARN pay is separate.
- FLSA: You generally cannot release your wage and hour claims unilaterally; in many circumstances, release of unpaid wages requires DOL or court approval.
- Title VII, ADA, ADEA, GINA: Discrimination claims can typically be released, but with specific requirements.
- Sarbanes-Oxley, Dodd-Frank: Whistleblower protections cannot be waived. Agreements cannot prohibit you from reporting to the SEC, EEOC, NLRB, or other agencies.
- NLRA: Confidentiality and non-disparagement clauses that substantially interfere with protected concerted activity may be unenforceable (McLaren Macomb, NLRB 2023).
Check what you are already owed
Check your existing documents before assuming the offered amount is a gift. You may already be entitled to severance under:
- Your employment agreement or offer letter
- An executive severance plan
- A change-of-control agreement
- A bonus plan with earned amounts not yet paid
- An equity plan with vesting acceleration provisions
- A collective bargaining agreement (for union-covered employees)
Severance you are already owed is not a gift; the new "offer" is often just wrapping owed amounts inside a broader release.
State variations worth knowing
California: Severance negotiations are common. California law prohibits provisions in severance agreements that prevent disclosure of factual information related to sexual assault, sexual harassment, or workplace harassment/discrimination claims. Non-compete provisions in severance are generally unenforceable (Bus. & Prof. Code § 16600). California also has a mini-WARN Act with its own 60-day notice requirements.
New York: Similar restrictions on confidentiality in harassment and discrimination cases. New York's WARN Act requires 90 days' notice for mass layoffs (stronger than federal). Severance agreements with employees 18 and older must allow 21 days to consider if they release discrimination claims, regardless of age.
Texas: Generally follows federal law. Severance agreements are governed largely by contract law with fewer state-specific restrictions. Non-compete provisions are enforceable within reasonable scope, including when offered in severance.
Other states: Restrictions on confidentiality and non-competes are expanding in many states. Check your state law before agreeing to broad restrictions.
Step-by-step: how to handle the offer
1. Do not sign on the spot
You are not required to sign the same day. If you are 40 or older and the agreement releases age discrimination claims, you are legally entitled to at least 21 days (45 in a group layoff). Most employers will extend the consideration period for you even when not legally required.
A typical script: "I want to take the time to review this carefully. I will not be signing today."
2. Read every section
Severance agreements typically contain the following provisions. Pay attention to each:
- Severance pay: amount, timing, method (lump sum vs. salary continuation), tax treatment
- Benefits continuation: COBRA, health insurance subsidies, outplacement, continued equity vesting
- Release of claims: scope of claims you are giving up
- Carve-outs: claims that CANNOT be released (agency charges, vested benefits, workers' comp, unemployment)
- Confidentiality: what you can and cannot disclose
- Non-disparagement: what you cannot say
- Non-compete, non-solicit: post-employment restrictions on future work, clients, and coworkers
- Return of property: company laptop, phone, documents, data
- Cooperation: any future obligations to assist with investigations or litigation
- Reference: what your employer will say to future employers
- Governing law and venue: which state's law and which court
- Effective date and revocation right: when the agreement takes effect, and for ADEA, your 7-day revocation window
3. Identify what you are giving up
Sit with the release language. It typically includes broad language like "any and all claims, known or unknown, arising out of your employment or its termination." That covers:
- Wage claims (some are non-releasable without government approval)
- Discrimination and harassment claims
- Retaliation claims
- Whistleblower claims (some cannot be fully waived)
- Breach of contract claims
- Tort claims (defamation, intentional infliction of emotional distress)
Ask yourself: do I have a potential claim here? If the answer might be yes, the release is worth real money.
4. Compare the offer to a baseline
Standard market severance varies, but typical reference points include:
- 1 to 4 weeks of pay per year of service for non-executives (higher in some industries or for executives)
- Accrued but unused PTO (required to be paid in many states regardless of severance)
- Prorated bonus for the year
- Continued benefits or a COBRA subsidy
- Some portion of unvested equity
- Outplacement services
If the offer is at or below the low end of the range, you have room to negotiate.
5. Negotiate
Severance is negotiable more often than not. Common asks:
- More pay or longer duration (e.g., 2 more weeks, additional month of salary continuation)
- Extended health benefits (employer-paid COBRA for 3–6 months)
- Accelerated equity vesting for any grants near a vesting cliff
- Positive or neutral reference language with a specific script
- Mutual non-disparagement (not just one-way)
- Narrower non-compete or non-solicit (or removal entirely, where enforceable)
- Clear carve-outs for agency charges, whistleblower reports, and existing claims
- Prorated bonus
- Right to return personal items or copies of data you personally need
Negotiate in writing where possible. Email is fine. Keep copies.
6. Get legal review before signing
Even a one-hour consultation with an employment attorney can be worth far more than it costs on a significant severance agreement. An attorney can:
- Spot problematic clauses you would not notice
- Evaluate any underlying claims you might be releasing
- Suggest specific language changes
- Negotiate on your behalf (often produces a better result)
Many employment attorneys offer flat fees or capped fees for severance review.
7. Track your revocation window
If you are 40 or older and signed an ADEA release, you have 7 days to revoke in writing. Mark the deadline on your calendar. Revocation usually requires written notice; read the specific procedure in the agreement.
8. Keep copies
- The signed agreement
- All negotiation emails
- Supporting documents (offer letter, equity agreements, bonus plan)
- Records of payments received under the agreement
Common misconceptions
"If I do not sign today, I lose the offer." Severance offers rarely evaporate on demand. The pressure is usually a negotiating tactic. Say "I need time to review with counsel," and keep moving. If the employer truly withdraws, you likely had a weaker deal than you thought.
"Once I sign, I cannot do anything about unpaid wages or a discrimination charge." Agency charges (EEOC, NLRB, SEC, OSHA 11(c), etc.) cannot be waived. Some wage claims cannot be privately released. Agreements that try to block agency charges are unenforceable on that point, though the rest of the release may still bind.
"A standard severance is the best I will get." "Standard" usually means "what they first offered, which was low." Most employers budget room to negotiate, and most employees who ask receive something more. The worst outcome is usually the original offer.
"If I reject the agreement, I get nothing." You often retain rights you already had: unpaid wages, PTO payout, COBRA, unemployment, vested benefits. You also retain the right to bring any claim you have. Rejecting the severance means you do not get the severance money in exchange for the release; it does not necessarily mean you leave empty-handed.
"A non-compete in my severance agreement is automatically enforceable." Non-compete enforceability varies widely by state. California, Minnesota, Oklahoma, and North Dakota broadly prohibit non-competes. Other states enforce them only within reasonable scope.
"Non-disparagement just means I cannot say bad things publicly." Broadly drafted non-disparagement clauses can sweep in statements to future employers, to regulators, or in private conversation. NLRB has recently signaled that some non-disparagement clauses are unenforceable for violating concerted-activity rights.
Red flags to watch for
- You are pressured to sign "today" or "within a few hours"
- The agreement is labeled as a release but covers much more (non-compete, non-solicit, assignment of inventions, non-disparagement, future cooperation)
- The severance amount looks calculated to "buy your silence" about something specific
- The release would waive whistleblower rights or regulatory protections
- The agreement does not clearly carve out vested benefits, pending claims, or accrued wages
- Non-compete is written more broadly than your actual job scope
- Non-disparagement is one-way (you cannot criticize them; they can say what they like)
- Reference policy is vague or does not specify what the employer will say
- Confidentiality clauses would prevent you from discussing discrimination or harassment (unenforceable in CA, NY, and other states)
- You are over 40 and the agreement does not give you 21 days (or 45 for a group) to consider and 7 days to revoke
- Tax treatment or payment timing creates large tax problems (lump sum hitting one year, 409A issues for deferred compensation)
- The agreement is being offered as a condition of receiving amounts you are already legally owed (accrued wages, earned bonus, vested equity)
When to talk to a lawyer
You should consult an employment attorney before signing if:
- The severance is significant in amount
- You are over 40 (ADEA rules are specific and getting them wrong can invalidate parts of the deal)
- You suspect you have a discrimination, harassment, retaliation, or whistleblower claim
- The agreement contains a non-compete, non-solicit, or broad non-disparagement clause
- Your stock options, RSUs, or deferred compensation are significantly affected
- You have unpaid or disputed wages, commissions, or bonuses
- You were terminated in close proximity to protected activity (leave, complaint, workers' comp, pregnancy disclosure)
- The company is in a group layoff with mass-layoff disclosures you do not fully understand
- The agreement's governing law or venue creates difficulties (e.g., far from where you live)
For severance agreements above a few thousand dollars, a 1–2 hour consultation with an employment attorney is almost always worth it. Many plaintiffs' employment attorneys offer flat fees or contingency fees based on increases to your package.
Educational content only — not legal advice. Employment law varies by jurisdiction and situation. Consult a qualified employment attorney for advice specific to your circumstances.