Severance Agreements: What You Are Being Asked to Sign

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. For many people this is the single most consequential document in the termination process, and it often helps to understand it before signing. 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 in return — typically a release of legal claims. Sometimes the release is routine; sometimes it is wrapped around real value a person is giving up. The specifics depend on your situation.

Here are some things people commonly try to 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
• Many people find that getting professional advice before signing is worth the cost

When might you receive a severance offer?

Severance offers usually appear when an employer is ending the relationship and wants certainty about what happens next. The most common setting is a layoff or reduction in force, where positions are eliminated for business reasons rather than performance. Restructuring that removes a role produces the same result. Offers also show up in terminations without cause, where the employer wants to limit legal risk, and in negotiated exits of senior people, where both sides would rather agree on the terms than argue about them. A smaller group of offers is not discretionary at all: some people already hold contractual severance rights under an employment agreement, offer letter, or executive plan, and a few states and municipalities require severance in specific situations. Which of these you are in matters, because it changes whether the money is a gift or something you already hold. The situations people most often describe:

• 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)

What does federal law say?

Federal law does not require most employers to offer severance, but several federal statutes shape what a severance agreement can validly ask you to give up. For workers 40 or older, the EEOC explains that the Older Workers Benefit Protection Act generally attaches specific timing and disclosure requirements to any release of age-discrimination claims. The WARN Act, per the U.S. Department of Labor, generally requires 60 days' notice of a mass layoff by larger employers, with pay in lieu where notice was not given — treated as separate from severance. The DOL generally treats wage and hour claims as something a worker cannot release unilaterally. Whistleblower protections under Sarbanes-Oxley and Dodd-Frank generally cannot be waived, and the NLRB has indicated that overly broad confidentiality and non-disparagement clauses may be unenforceable. How each plays out depends on your situation, and these rules and figures can change. The federal statutes that most often apply:

• Older Workers Benefit Protection Act (OWBPA): For workers 40 or older, the EEOC explains that a severance agreement releasing age discrimination claims generally must give 21 days to consider (or 45 days in a group layoff), 7 days to revoke after signing, written notice advising the worker to consult an attorney, and plain-language disclosures about the group in a RIF. The EEOC treats releases that do not comply as generally unenforceable as to ADEA claims.
• WARN Act: The federal Worker Adjustment and Retraining Notification Act, per the U.S. Department of Labor, generally requires 60 days' notice of mass layoffs or plant closings by employers of 100+ employees. Where notice is not given, affected workers are generally given pay in lieu of notice. Severance on top of WARN pay is treated as separate.
• FLSA: The DOL generally treats wage and hour claims as something a worker cannot release unilaterally; in many circumstances, release of unpaid wages typically requires DOL or court approval.
• Title VII, ADA, ADEA, GINA: Discrimination claims can typically be released, but the law generally attaches specific requirements.
• Sarbanes-Oxley, Dodd-Frank: Whistleblower protections generally cannot be waived. Agencies like the SEC and EEOC treat agreements that prohibit reporting to the SEC, EEOC, NLRB, or other agencies as unenforceable on that point.
• NLRA: The NLRB has indicated that confidentiality and non-disparagement clauses which substantially interfere with protected concerted activity may be unenforceable (McLaren Macomb, NLRB 2023).

What might you already be owed?

You may already be owed some or all of what is being presented as a new offer, which is why many people read their existing documents before treating the number as a gift. An employment agreement or offer letter can promise a specific severance formula. So can an executive severance plan or a change-of-control agreement, both of which typically set out an amount that does not depend on the employer's goodwill at the time. A bonus plan may hold earned amounts that have not yet been paid, and an equity plan may contain vesting acceleration that triggers on the kind of departure you are having. Union-covered employees may have terms set by a collective bargaining agreement. Where one of these applies, the new agreement is often wrapping owed amounts inside a broader release. Whether any of them applies depends on your specific documents. The documents people commonly check:

• 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 under one of these is generally not a gift; the new "offer" is often just wrapping owed amounts inside a broader release. Whether any of these applies depends on your specific documents.

How does this vary by state?

State law varies a great deal here, and it tends to matter most for confidentiality clauses, non-competes, and notice periods. California generally prohibits severance provisions that prevent disclosure of factual information about sexual assault, sexual harassment, or workplace harassment and discrimination claims, and non-compete provisions in severance are generally unenforceable there. New York has similar restrictions on confidentiality in harassment and discrimination cases, a longer mass-layoff notice period than federal law, and its own consideration-period rule for releases of discrimination claims. Texas generally follows federal law and treats severance largely as a matter of contract, with non-competes generally enforceable within a reasonable scope. Restrictions on confidentiality and non-competes are expanding in many other states. These rules continue to change, and your state may differ, so it often helps to check your own before agreeing to broad restrictions. How the picture commonly looks state by state:

California: Severance negotiations are common. California law generally 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 generally requires 90 days' notice for mass layoffs (stronger than federal). Under New York law, severance agreements with employees 18 and older that release discrimination claims generally must allow 21 days to consider, 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 generally enforceable within reasonable scope, including when offered in severance.

Other states: Restrictions on confidentiality and non-competes are expanding in many states. It often helps to check your state's law before agreeing to broad restrictions.

How do you handle a severance offer, step by step?

Most people work through a severance offer in roughly the same order, and none of it starts with signing. The first move is usually to take the time — you are generally not required to sign the same day, and for workers 40 or older releasing age-discrimination claims, the OWBPA generally provides at least 21 days to consider, or 45 in a group layoff. From there the work is reading: every section of the agreement, then the release language specifically, to see what is actually being given up. Next comes comparison, holding the offer against typical reference points and against anything you may already be owed. Then negotiation, which is normal and usually done in writing. Many people get a short legal review before signing, track the 7-day revocation window afterward, and keep copies of everything. The steps below walk through that arc.

1. Many people don't sign on the spot

You are generally not required to sign the same day. For workers 40 or older, when the agreement releases age discrimination claims, the OWBPA generally provides at least 21 days to consider (45 in a group layoff). Many employers will extend the consideration period even when not legally required.

A script people sometimes use: "I want to take the time to review this carefully. I will not be signing today."

2. Many people read every section

Severance agreements typically contain the following provisions, and it often helps to look at 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 being given up
• Carve-outs: claims that generally 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, the 7-day revocation window

3. People look at what is being given up

It often helps to 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 generally 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)

A question many people ask themselves: do I have a potential claim here? If the answer might be yes, the release may be worth real money.

4. People often compare the offer to a baseline

Standard market severance varies, but typical reference points people use 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 (many states generally require this to be paid 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, there may be room to negotiate. What's typical depends on your industry and situation.

5. Many people negotiate

Severance is negotiable more often than not. Common asks people make:

• 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

Many people negotiate in writing where possible. Email is fine, and keeping copies often helps.

6. Many people consider legal review before signing

Many people find that 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 might 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. People often track the revocation window

For workers 40 or older who signed an ADEA release, the OWBPA generally provides 7 days to revoke in writing. Many people mark the deadline on a calendar. Revocation usually requires written notice; the specific procedure is typically spelled out in the agreement.

8. Many people keep copies

• The signed agreement
• All negotiation emails
• Supporting documents (offer letter, equity agreements, bonus plan)
• Records of payments received under the agreement

What do people commonly get wrong?

The most common mistake is believing the offer will disappear if it is not signed immediately — speed pressure is usually a negotiating tactic rather than a legal constraint. Close behind is assuming the number is fixed, when many employers budget room to negotiate and the common worst case of asking is the original offer. A third is thinking a signature ends every avenue: agencies generally treat their own charge processes as something that cannot be waived, and some wage claims generally cannot be privately released. A fourth is believing that rejecting the agreement means leaving with nothing, when people generally keep the rights they already had. Two more concern the fine print — assuming a non-compete is automatically enforceable when enforceability varies widely by state, and reading non-disparagement narrowly when the clause may be drafted very broadly. The specifics depend on your situation.

"If I do not sign today, I lose the offer." Severance offers rarely evaporate on demand. The pressure is usually a negotiating tactic. Many people say "I need time to review with counsel," and keep moving. If an employer truly withdraws, the deal may have been weaker than it looked.

"Once I sign, I cannot do anything about unpaid wages or a discrimination charge." Agencies generally treat their charge processes (EEOC, NLRB, SEC, OSHA 11(c), etc.) as something that cannot be waived. Some wage claims generally cannot be privately released. Agreements that try to block agency charges are typically unenforceable on that point, though the rest of the release may still bind — the specifics depend on your situation.

"A standard severance is the best I will get." "Standard" often means "what they first offered, which was low." Many employers budget room to negotiate, and many employees who ask receive something more. The worst outcome is often just the original offer.

"If I reject the agreement, I get nothing." People often retain rights they already had: unpaid wages, PTO payout, COBRA, unemployment, vested benefits. You also generally retain the right to bring any claim you have. Rejecting the severance generally means not getting the severance money in exchange for the release; it does not necessarily mean leaving 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. The NLRB has recently signaled that some non-disparagement clauses are unenforceable for violating concerted-activity rights.

What red flags should you watch for?

The clearest red flag is pressure to sign within hours, because the timing usually has more to do with negotiation than with any legal deadline. The next is scope: an agreement labeled as a release that also carries a non-compete, non-solicit, assignment of inventions, non-disparagement, or future cooperation obligation is asking for considerably more than it appears to. Missing carve-outs are worth noticing too, since vested benefits, pending claims, and accrued wages are normally preserved explicitly. So are one-way non-disparagement clauses, vague reference language, and confidentiality terms that would prevent discussion of discrimination or harassment, which are generally unenforceable in California, New York, and other states. For workers 40 or older, an agreement that skips the consideration and revocation periods the OWBPA generally provides is a signal in itself. Tax treatment and payment timing are worth a look as well. What people commonly flag:

• 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 (generally unenforceable in CA, NY, and other states)
• You are over 40 and the agreement does not give the 21 days (or 45 for a group) to consider and 7 days to revoke that the OWBPA generally provides
• 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 may already be legally owed (accrued wages, earned bonus, vested equity)

When should you talk to a lawyer?

Many people get a professional read before signing when the amount is significant, when they are 40 or older and the ADEA timing rules are in play, or when they suspect a discrimination, harassment, retaliation, or whistleblower claim that the release would extinguish. Restrictive covenants are another common trigger, as are stock options, RSUs, or deferred compensation that the agreement affects, and unpaid or disputed wages, commissions, or bonuses. Timing matters too: people terminated close to a protected activity such as a leave, a complaint, a workers' compensation claim, or a pregnancy disclosure often want the sequence looked at by someone else. Group layoffs with mass-layoff disclosures that are hard to follow are a frequent reason as well. For agreements above a few thousand dollars, many people find a one to two hour consultation worth it. The situations people most often bring to counsel:

• The severance is significant in amount
• They are over 40 (ADEA rules are specific, and getting them wrong can invalidate parts of the deal)
• They suspect a discrimination, harassment, retaliation, or whistleblower claim
• The agreement contains a non-compete, non-solicit, or broad non-disparagement clause
• Stock options, RSUs, or deferred compensation are significantly affected
• There are unpaid or disputed wages, commissions, or bonuses
• They 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 they do not fully understand
• The agreement's governing law or venue creates difficulties (e.g., far from where they live)

For severance agreements above a few thousand dollars, many people find a 1–2 hour consultation with an employment attorney worth it. Many plaintiffs' employment attorneys offer flat fees or contingency fees based on increases to a package.

Official sources

• U.S. Equal Employment Opportunity Commission — Q&A: Understanding Waivers of Discrimination Claims in Employee Severance Agreements
• U.S. Department of Labor — WARN Act Compliance Assistance
• National Labor Relations Board — Board Rules that Employers May Not Offer Severance Agreements Requiring Employees to Broadly Waive Labor Law Rights (McLaren Macomb)