Severance Agreements: What to Know Before You Sign
A guide to understanding severance agreements, including what to negotiate, red flags to watch for, and why legal review is essential.
What Is a Severance Agreement?
A severance agreement is a contract that typically provides compensation in exchange for the employee's agreement to release all claims against the employer. It is one of the most important legal documents an employee will ever sign and deserves careful review.
Common Terms
Typical terms include a lump sum or continued salary, health insurance continuation, a general release of claims, non-disparagement and confidentiality clauses, non-compete or non-solicitation restrictions, cooperation clauses, and return of company property requirements. Each is negotiable.
The Release of Claims
By signing, you typically waive your right to file lawsuits for wrongful termination, discrimination, harassment, retaliation, and other claims. If you have a potential legal claim, signing means you lose the ability to pursue it. This is why legal review is essential.
Special Rules for Workers Over 40
The Older Workers Benefit Protection Act requires at least 21 days to consider the agreement (45 days for group layoffs) and 7 days to revoke after signing. The employer must provide specific information about the decisional unit and ages of those affected. Non-compliant waivers are unenforceable.
Red Flags
Watch for overly broad non-competes, extremely short signing deadlines, provisions forfeiting unemployment benefits, clauses preventing EEOC charges, unreasonable cooperation requirements, and releases covering unknown future claims.
Negotiating a Better Package
Common negotiation points include severance amount, health insurance duration, non-compete removal, reference letters, mutual non-disparagement, extended signing deadlines, and outplacement assistance. Your leverage comes from understanding your legal claims.
Why Have a Lawyer Review
An attorney evaluates your potential claims, determines if the offer is fair, identifies unfavorable terms, negotiates directly with your employer, and ensures legal compliance. Many attorneys offer flat-fee severance reviews.
Need Legal Help With Your Situation?
This guide is for informational purposes. For advice specific to your situation, get a free consultation with an experienced employment attorney.
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