Document Guide

Severance agreement
IN PLAIN ENGLISH

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A severance agreement is a contract between an employer and a departing employee that exchanges something of value — usually money — for the employee's agreement to leave quietly and not sue. It goes by other names: separation agreement, termination agreement, exit agreement. Whatever the label, the core deal is the same: the company offers a payout (sometimes with extended benefits) in exchange for a release of legal claims and, almost always, a promise not to say anything negative about the company.

Severance is not required by law in the US. Most employees are at-will, meaning they can be let go at any time for any reason that isn't illegal. The company offers severance because it wants something: certainty that the employee won't file a lawsuit, won't trash the company publicly, and won't try to poach colleagues or clients. The employee's leverage depends on what claims they might have — age discrimination, wrongful termination, unpaid wages, retaliation — and how much the company wants to avoid the cost and PR risk of a dispute.

Because severance agreements are presented at a vulnerable moment — often the same day you're told you're being let go — there's a tendency to sign fast and move on. That's usually a mistake. The agreement is almost always negotiable, especially the amount, the timeline, and the scope of the non-disparagement and non-compete clauses. Even if you decide not to push back, you want to understand exactly what you're agreeing to, because once you sign, you've typically waived any ability to revisit the terms or pursue claims you didn't know you had.

Common clauses in a severance agreement

  • Severance payment

    The headline number: how much the company will pay you, and on what schedule. Severance is often expressed as a number of weeks or months of base salary. A common formula is one to two weeks per year of service, but there's no legal standard — it's whatever the company decides to offer. Some agreements pay as a lump sum; others continue regular payroll for a set period. The tax treatment is the same either way (ordinary income), but the timing affects unemployment eligibility and cash flow.

  • Benefits continuation

    Describes what happens to health insurance, dental, vision, life insurance, and other benefits after your last day. Most employers offer COBRA continuation, which lets you stay on the company's plan at your own expense (plus a 2% admin fee) for up to 18 months. Some severance packages sweeten this by paying the employer share of COBRA premiums for a few months. If you're close to Medicare eligibility or have a pre-existing condition, this clause matters a lot.

  • Release of claims

    The core of the agreement: you agree to release the company from any and all legal claims arising out of your employment or termination. The language is intentionally broad — it covers claims you know about and claims you don't, under federal, state, and local law, including discrimination, harassment, retaliation, wrongful termination, breach of contract, and wage-and-hour violations. What you're giving up is the right to sue, file a charge with the EEOC (in most cases), or join a class action.

  • ADEA waiver and 21-day review period

    If you're 40 or older, federal law (the Older Workers Benefit Protection Act) requires the employer to give you at least 21 days to consider the agreement and 7 days to revoke it after signing. The agreement must specifically mention the Age Discrimination in Employment Act (ADEA) and advise you in writing to consult an attorney. If the company is laying off a group, the review period extends to 45 days and the company must disclose the job titles and ages of everyone in the affected group. These rules exist because age discrimination claims are common and courts want to ensure waivers are knowing and voluntary.

  • Non-disparagement

    A promise not to say anything negative about the company, its executives, its products, or its business practices — publicly or privately. Non-disparagement clauses are usually mutual, meaning the company also agrees not to badmouth you, but the practical enforcement is one-sided. Violating non-disparagement can void the severance payment or trigger a clawback. Worth reading carefully to see how broad the restriction is and whether it covers truthful statements made to government agencies (which, under recent NLRB guidance, it generally can't).

  • Confidentiality of the agreement

    A clause that says you can't disclose the terms of the severance itself — including the amount — to anyone except your spouse, attorney, or tax advisor. Breaching this is often treated the same as breaching non-disparagement. In practice, these clauses are hard to enforce unless you post on social media or tell a coworker who reports it back, but the risk is real.

  • Non-compete and non-solicit

    Restrictions on where you can work next and whether you can recruit former colleagues or clients. Non-competes vary wildly in enforceability by state — California bans them almost entirely; most other states enforce them if they're "reasonable" in scope, geography, and duration. Non-solicits (no poaching employees or customers) are more commonly enforced. If the severance agreement includes a new or broader non-compete than your original employment agreement, that's a negotiation point.

  • Return of company property

    A promise to return laptops, phones, badges, keys, documents, and any other company property by a specified date. Usually straightforward, but can include language about deleting company data from personal devices or certifying that you haven't retained copies of confidential information. If you have personal files mixed with work files, sort this out before signing.

  • Cooperation clause

    An agreement to make yourself available to assist with ongoing matters — litigation, audits, investigations, transition — for some period after you leave. Reasonable cooperation clauses are standard; aggressive ones that require unlimited availability without compensation are not. If the cooperation is likely to be substantial, ask for hourly compensation or a cap on time.

  • Reference and employment verification

    Specifies what the company will say if a future employer calls. The safest language is "neutral reference" — confirming dates of employment and job title only. Some agreements let you negotiate a specific positive statement or letter of recommendation. If the separation was contentious, getting this in writing matters.

  • No admission of liability

    Boilerplate that says the company isn't admitting it did anything wrong by offering severance. This protects the company if you later try to argue that the payment itself proves wrongdoing. Standard language, not usually negotiable.

Red flags to watch for

  • Overly broad release of claims

    Language that releases "any and all claims, known and unknown, past and future" is standard, but watch for releases that go beyond employment-related claims — like claims for unpaid equity, breach of a prior contract, or personal-injury incidents on company property. You shouldn't be waiving claims that have nothing to do with your job.

  • Waiver of WARN Act claims without adequate consideration

    The WARN Act requires 60 days' notice (or pay in lieu) for mass layoffs at large employers. If the company didn't give proper notice, you may have a WARN claim worth 60 days of pay and benefits. Some severance agreements try to waive this without offering additional consideration — essentially getting you to give up the claim for free.

  • Non-compete that's broader than your original agreement

    If the severance agreement includes a non-compete clause that's longer, geographically wider, or covers more industries than what you signed when you were hired, you're being asked to accept new restrictions in exchange for being let go. That's negotiable.

  • Clawback for any breach

    A clause that says you forfeit all severance — or must repay it — if you breach any provision of the agreement, including confidentiality or non-disparagement. This makes a minor slip (like mentioning your severance amount to a friend) potentially very expensive. Ask for language that limits clawback to material breaches.

  • No carve-out for government agencies

    Post-2024 NLRB guidance says employers can't prohibit employees from discussing the terms of their employment with federal agencies. A severance agreement that doesn't carve out communications with the EEOC, SEC, NLRB, or DOL may be unenforceable in part, but it's still a sign the agreement was drafted aggressively or hasn't been updated.

  • Short deadline to sign with no extension

    If you're being given less than 21 days to review (and you're over 40), that's a legal problem. If you're under 40 and being given 24 or 48 hours, that's a pressure tactic. Employers almost always extend the deadline if you ask — and if they won't, that tells you something about how they negotiate.

  • No mutual non-disparagement

    A one-sided non-disparagement clause that binds you but not the company. This leaves you exposed if your manager or HR badmouths you to a reference checker. Always ask for mutual language.

  • Vague cooperation obligations

    Language that requires you to cooperate with "any matter" for an indefinite period, without compensation. If the company expects you to testify, sit for depositions, or spend hours on calls, you should be paid for your time at a reasonable rate.

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// This is not legal advice // Plain-English summary generated by AI // Always read the original document