Severance Agreement Red Flags: What to Watch For
Severance agreements arrive at one of the most stressful moments in your career. You have just been laid off or terminated, and someone is asking you to sign a legal document in exchange for a few weeks or months of pay. The pressure to sign quickly is intense, but rushing through a severance agreement can cost you far more than the severance is worth.
Severance agreements are not just about money. They typically include a release of all legal claims against the employer, non-disparagement clauses, confidentiality requirements, and sometimes extended non-compete restrictions. Understanding what you are giving up is essential to deciding whether the offer is fair.
In most cases, you have 21 days to review a severance agreement (45 days if you are over 40 or part of a group layoff). Use that time.
Red Flags to Watch For
Broad Release of All Claims
Releasing "any and all claims" means you cannot sue for anything, including discrimination, unpaid wages, or hostile work environment. Know what you are waiving.
Non-Disparagement Without Mutual Terms
If you cannot say anything negative about the company but they can say whatever they want about you, the terms are not balanced.
Extended or New Non-Compete
Some severance agreements extend existing non-competes or add new ones. You should not accept additional career restrictions without significant additional compensation.
Cooperation Clause Without Compensation
Clauses requiring you to assist with future litigation or investigations without paying for your time are one-sided.
Confidentiality About the Agreement Itself
Preventing you from discussing the severance terms with anyone (except attorneys and tax advisors) can limit your ability to get advice.
Short Review Period
If you are being pressured to sign quickly, that is a red flag. Federal law gives you at least 21 days to review, and 7 days to revoke after signing.
Have a Severance Agreement to Review?
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Scan Your Severance AgreementFrequently Asked Questions
Can I negotiate a severance package?+
Almost always. Companies expect negotiation. Common points include the amount, extended benefits, non-compete modifications, neutral references, and outplacement services.
Do I have to sign a severance agreement?+
No. Severance is almost never legally required (unless your employment agreement guarantees it). You can decline the offer, though you will not receive the severance pay.
Should I hire a lawyer to review my severance?+
For significant severance packages or if you believe you may have legal claims against the employer, consulting an employment attorney is strongly recommended. Many offer flat-fee severance reviews.
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Disclaimer: This page is for educational purposes only and does not constitute legal advice. For questions about your specific situation, consult a qualified attorney.