Severance Agreement Review: Know What You Are Giving Up

Losing your job is stressful, and when your employer slides a severance agreement across the table, the temptation is to sign quickly and move on. But a severance agreement is not a gift. It is a contract, and like any contract, it comes with terms and conditions that can significantly impact your future. Understanding what you are giving up in exchange for severance pay is critical before you put your signature on the page.

What Is a Severance Agreement?

A severance agreement is a contract between you and your employer that provides you with compensation (severance pay, continued benefits, or other considerations) in exchange for certain promises from you. The most common promise is a release of legal claims, meaning you agree not to sue the company. But severance agreements often include many other provisions that restrict what you can do after you leave.

Release of Claims

This is the core of most severance agreements. By signing, you typically waive your right to sue the company for wrongful termination, discrimination, harassment, unpaid wages, and other employment-related claims. The release is usually very broad, covering "any and all claims, known or unknown."

Before signing, consider whether you might have valid legal claims. If you believe you were terminated due to discrimination, retaliation, or other illegal reasons, signing away those rights for a few weeks of pay could be a costly mistake. Certain rights, like the right to file a charge with the EEOC, generally cannot be waived.

Non-Disparagement Clauses

Most severance agreements include a non-disparagement clause that prevents you from saying negative things about the company, its leadership, or its products. While this sounds straightforward, the definition of "disparagement" can be very broad. Posting an honest review on Glassdoor, discussing your experience with a journalist, or even venting to friends on social media could potentially violate this clause.

Check whether the non-disparagement obligation is mutual. If the company can say whatever it wants about you but you cannot say anything negative about them, the clause is one-sided. Push for mutual non-disparagement or at minimum, clarify what constitutes a violation.

Non-Compete and Non-Solicitation

Some severance agreements include or reinforce non-compete clauses that restrict your ability to work for competitors for a period after your departure. Others include non-solicitation clauses that prevent you from contacting former colleagues or clients. These restrictions can seriously limit your job search and career options.

If the severance agreement introduces a new non-compete that was not in your original employment contract, this is a significant ask that should come with significant compensation. For more on this topic, see our detailed guide on non-compete agreements.

Confidentiality of the Agreement Itself

Many severance agreements require you to keep the terms of the agreement confidential. This means you cannot tell anyone how much severance you received, what you agreed to, or even that the agreement exists. Violating this clause can result in having to return the severance payment. Be aware of this restriction, especially if you plan to discuss your departure with friends, family, or future employers.

Cooperation Clauses

Some agreements require you to cooperate with the company on future legal matters, investigations, or transitions. This sounds minor, but it could mean spending hours or days providing testimony, reviewing documents, or training your replacement, potentially without additional compensation. Understand the scope of any cooperation requirement and whether you will be paid for your time.

Your Right to Review

If you are over 40, federal law (the Older Workers Benefit Protection Act) requires your employer to give you at least 21 days to review the agreement and 7 days to revoke it after signing. If the severance is part of a group layoff, the review period extends to 45 days. Regardless of your age, you should never feel pressured to sign immediately. Take the full review period and use it.

What You Can Negotiate

Severance agreements are negotiable. Common areas for negotiation include the amount of severance pay, duration of continued health insurance, removal or modification of non-compete clauses, the reference the company will provide, acceleration of stock option vesting, and outplacement services. The company presented an initial offer because they want you to sign. That gives you leverage to ask for better terms.

Upload your severance agreement to Fine Print Fighters for a quick analysis of the key clauses and potential red flags. You can also review our guide on employment contract red flags for broader context on employment agreements.

Disclaimer: This article is for educational purposes only and does not constitute legal advice. Severance agreements have significant legal implications. Consult a qualified employment attorney in your jurisdiction before signing.