Severance Agreements in the United States: What to Check Before You Sign
Severance agreements in the United States are documents many employees are asked to sign quickly after a layoff or termination, often at a stressful moment and with a deadline attached. In exchange for severance pay, you are usually asked to give up important rights, including the right to sue your former employer, so understanding what to check before you sign is essential.
This guide explains what severance agreements typically contain, the clauses that matter most, the review periods the law requires, and when to negotiate. It is general information, not legal advice for your situation.
This article provides general legal information only. It is not legal advice, and it does not create a lawyer-client relationship. Employment law varies by state, so consult a licensed employment attorney about your agreement.
What a Severance Agreement Usually Includes
A typical severance agreement offers a payment, often based on your salary and years of service, plus benefits such as continued health insurance for a period, outplacement services, or a positive reference. In exchange, you agree to a general release of claims, meaning you give up the right to sue the employer for most employment-related claims, including discrimination, wrongful termination, and unpaid wages, with limited exceptions.
The agreement may also include confidentiality, non-disparagement, non-compete, and non-solicitation clauses, a return of company property requirement, and a statement that you will not apply for re-employment with the company.
The Release of Claims: Read It Carefully
The release is the most important part. Check exactly which claims you are giving up and whether any are excluded, such as workers' compensation claims, unemployment benefits, vested retirement benefits, or claims that cannot legally be waived. Some releases cover only known claims, while others cover unknown claims as well, which is a much broader waiver.
If you believe you were terminated for an unlawful reason, such as discrimination or retaliation, do not sign a broad release without legal advice, since you may be giving up a valuable claim for a modest payment.
Review Periods and Revocation Rights
Under federal law, employees aged 40 and over who are asked to waive age discrimination claims must receive at least 21 days to consider the agreement, or 45 days in a group layoff, plus a 7-day revocation period after signing. Even when these rules do not apply, a reasonable review period is a sign of a fair agreement, and pressure to sign immediately is a warning sign.
Use the review period to have an attorney review the agreement, calculate what you are owed, and compare the offer with your legal options. Signing early rarely improves the offer.
Clauses That Deserve Extra Attention
Pay close attention to non-compete clauses, which may restrict your next job, and non-disparagement clauses, which may limit what you can say about the employer, including in reviews or to future employers. Check whether these clauses are mutual, so the employer is also restricted from disparaging you.
Also check the tax treatment of severance pay, the timing of payment, whether unused vacation or bonuses are included, and what happens to stock options, retirement accounts, and health coverage. Get any promises about references or rehire eligibility in writing.
When to Negotiate
Severance offers are often negotiable, especially for long-tenured employees, managers, or employees with potential legal claims. You can negotiate for more pay, extended benefits, a later last working day, a neutral reference, a narrower non-compete, or a mutual non-disparagement clause.
Negotiation is most effective when you can point to specific value: your tenure, your contributions, the strength of any claim, or the employer's desire for a clean separation. An attorney can negotiate on your behalf without damaging the relationship.
How an Employment Lawyer Helps
An employment lawyer can review the agreement, identify one-sided clauses, estimate the value of any claims you would be waiving, and negotiate better terms. Many lawyers review severance agreements for a flat fee, and the improvement in terms often exceeds the cost.
If the agreement contains unlawful terms, such as a waiver of rights that cannot be waived, a lawyer can challenge those terms before you sign.
Making Your Final Decision
Before you sign a severance agreement, read the release carefully, use the full review period, check non-compete and non-disparagement clauses, confirm payment and benefits details, and consider whether negotiation could improve the deal.
If the amount is significant, the restrictions are broad, or you suspect an unlawful termination, speak with an employment lawyer before signing. A short review can protect rights that, once waived, are very difficult to recover.
Disclaimer: This article provides general legal information only and is not legal advice. Employment law, review periods, and waiver rules vary by state and by situation. For advice about your agreement, consult a licensed employment attorney.
