Should You Sign a Severance Agreement? What to Check First

Before you sign a severance agreement, understand what it actually is. It’s a contract in which your employer pays you money in exchange for giving up the right to sue. That is the whole transaction. The payment is not a bonus, a thank-you, or a legal requirement. No federal law obligates a private employer to offer severance at all. When one does, it’s buying a release of claims. The price reflects how much it thinks those claims might be worth.

The release is the point of the document

Every severance agreement contains a release, usually several pages long. It waives claims for discrimination, retaliation, unpaid wages, wrongful termination, and anything else the drafting lawyer could think of. You can’t waive some claims, such as the right to file a charge with the EEOC or to receive unemployment benefits. Most others can. Once you sign, those claims are gone. Reading the release before signing is the single most important step. It’s also the part most people skip because it looks like boilerplate.

If you’re 40 or older, the law gives you time to sign a severance agreement

The Older Workers Benefit Protection Act is part of the federal Age Discrimination in Employment Act. It sets minimum requirements for any release of age claims by a worker 40 or older. The employer must give you at least 21 days to consider the agreement, and 7 days after signing to revoke it. In a group layoff, the review period is 45 days. The employer also has to disclose the ages and job titles of who was selected and who wasn’t. The agreement must also advise you in writing to consult a lawyer. A release that skips those steps is unenforceable as to age claims. Employers know this. That’s why the “please sign by Friday” pressure usually evaporates when someone asks about the 21 days.

Clauses worth checking before you sign a severance agreement

Beyond the release, four provisions do most of the damage. A non-disparagement clause can restrict what you say about the company, sometimes broadly. Confidentiality clauses can bar you from discussing the terms, and in some agreements, the underlying events. Sometimes a non-compete or non-solicitation clause is tucked in, extending restrictions you never agreed to during employment. Finally, a “no rehire” clause can block you from future roles at the company or its affiliates. Each of these is negotiable. Many people don’t realize the first draft is an opening offer.

What the money should be measured against

A common benchmark is one to two weeks of pay per year of service, but that’s convention, not law. The real measure is the value of what you’re releasing. Someone with a plausible discrimination or retaliation claim is releasing something valuable. Someone laid off in a routine reduction is releasing much less. Also check what the employer already owes regardless of the agreement. That includes final wages, accrued vacation in states that require it, expense reimbursements, and COBRA notices. Those aren’t consideration for the release. They’re yours either way.

What signing does to unemployment and future claims

Severance can delay unemployment benefits in some states, depending on how the payment is structured. The agreement can’t waive your right to apply. It also can’t stop you from cooperating with a government investigation or filing an EEOC charge. It can, however, waive your right to collect money from one. If you’ve already raised a complaint about discrimination or harassment, that history changes the calculus. It’s worth a conversation with an employment lawyer before the review period runs.

The bottom line

Sign a severance agreement only after you’ve read the release, checked the restrictive clauses, and compared the payment to what you’re giving up. Not because HR set a deadline. Federal law protects workers 40 and older with a mandatory review window. For everyone else, the leverage comes from knowing the first draft is negotiable. The employer is buying certainty. The question is whether the price is right.

Keep reading: Employment and labor attorneys · Five questions before you hire a lawyer

This article is general information about severance agreements and employment separation and is not legal advice. Laws differ by state and change over time, and the facts of your situation matter. For guidance on your own circumstances, consult a licensed attorney in your state.