Severance Agreement Review: What to Know Before You Sign

A severance agreement (also called a separation agreement or severance and release) is a contract between you and your employer. In exchange for additional compensation (the severance pay), you agree to release legal claims against the company.

Key point: Employers are not legally required to offer severance in most cases. When they offer it, they want something in return — usually a release of all legal claims including potential discrimination, wrongful termination, wage and hour violations, and other employment claims. The more valuable your potential claims, the more leverage you have.

If you're 40 or older, the Age Discrimination in Employment Act (ADEA) and its amendment (the Older Workers Benefit Protection Act, OWBPA) give you specific protections:

21-day consideration period: The employer must give you at least 21 days to consider the agreement before signing. You cannot waive this (the employer can't pressure you into signing faster — though they can offer a signing bonus for signing early, which you can accept or decline).

7-day revocation period: After signing, you have 7 days to revoke the agreement. Send written revocation via certified mail within 7 days and the agreement is void. This is statutory and cannot be waived.

Group layoff disclosure: If you're part of a group layoff, the employer must provide a list of all affected employees' ages and job titles, and those retained, so you can assess whether age discrimination occurred.

Specific ADEA language required: The agreement must explicitly state you're waiving ADEA claims, advise you to consult an attorney, and reference the 21-day and 7-day periods.

Release of claims: What exactly are you releasing? A proper release releases known and unknown claims as of the date of signing. Watch for releases that include claims for future conduct (these are invalid) or for workers' comp claims (often prohibited).

Non-disparagement: You agree not to make negative statements about the company. Is it mutual? If the company can say what it wants about you but you can't respond, that's unequal. Negotiate for mutual non-disparagement.

Non-compete: Are you agreeing to a new or extended non-compete? This is serious — a non-compete in a severance agreement may be enforceable in ways the original employment agreement wasn't. Negotiate the scope (duration, geography, industry) aggressively.

Non-solicitation: Prohibits contacting former clients or employees. Check duration and scope.

Cooperation clause: You agree to assist the company in future litigation. Reasonable for ongoing matters you were involved in; unreasonable if it requires extensive time without compensation.

Return of company property: Standard and appropriate. Confirm exactly what must be returned and the timeline.

There's no legal minimum for severance (unless your employment contract specifies it). General benchmarks:

Industry standard: 1–2 weeks per year of service is common. Senior executives often get 1–3 months per year. Some sectors (finance, tech) have more generous norms.

WARN Act entitlements: If you were laid off without 60 days notice as part of a mass layoff (100+ employees), you may be entitled to 60 days' pay and benefits under the federal WARN Act, separate from severance.

Your leverage: If you have potential legal claims (age discrimination, gender discrimination, whistleblower retaliation, wage theft), those claims have dollar value that should be reflected in the severance. This is why the employer is offering severance — to make those claims go away.

Healthcare: COBRA continuation lets you keep your employer health insurance for 18 months, but you pay the full premium (often $500–$1,500/month for a family). Many employees don't realize how expensive this is until after they sign. Negotiate for the employer to continue paying premiums for 1–3 months.

Negotiation is expected. The first offer is almost never the final offer. Strategies:

Take the full 21 days: Don't be rushed. Use the time to consult an attorney and evaluate your position.

Respond in writing: Send a formal counter-proposal letter rather than negotiating verbally. It creates a record and signals you're taking this seriously.

Counter on multiple dimensions simultaneously: More severance pay AND extended benefits AND a mutual non-disparagement clause AND a narrowed non-compete. Don't give on one item without getting something in return.

Reference the company's behavior: If you were laid off unfairly, without WARN Act notice, with potential discrimination, or after raising concerns about illegal activity (whistleblower), name it. Companies pay more to settle potential claims.

Ask for reference support: Get the company to agree in writing to what they'll say about you to future employers, or provide a specific reference letter you've pre-approved.

Consider consulting an employment attorney if:

• You're 40+ (ADEA protections require careful review)
• The severance package is more than $25,000
• You were in a protected class and may have discrimination claims
• You raised workplace concerns (safety, fraud, discrimination) before the termination
• The non-compete or non-solicitation clause would significantly restrict your next job
• The agreement is complex or contains unusual provisions

Many employment attorneys offer free 30-minute consultations and can quickly identify whether you have leverage. Their review is often worth the cost even if you ultimately sign without major changes — you'll know exactly what you're signing.