Severance Agreement Guide: Everything You Need to Know Before You Sign

What a Severance Agreement Actually Is

A severance agreement is a contract between you and your employer that provides you with severance pay and other benefits in exchange for releasing legal claims against the company. This is the core trade: money now, in exchange for your promise not to sue. Understanding this trade — and what you are giving up — is essential before you sign.

Most employees receive severance offers when they are laid off, when their position is eliminated, or in some cases when they resign by mutual agreement. Severance is generally not required by law in the United States; it is voluntary unless required by an employment contract or a written severance policy. This means everything is negotiable.

The Release of Claims: What You Are Giving Up

The release of claims is the most important part of the severance agreement and the part most people sign without reading carefully. A typical release broadly waives all claims you have or might have against the employer, its subsidiaries, officers, directors, agents, and successors — including claims under Title VII, the ADEA, the ADA, state employment discrimination laws, and any other federal or state statute.

What this means practically: once you sign and the revocation period passes, you cannot sue for wrongful termination, discrimination, harassment, wage theft, retaliation, or any other employment claim that arose before the release date — even if you later discover evidence of wrongdoing. You are permanently closing those legal doors in exchange for the severance payment.

Before signing, ask yourself: was anything about my termination potentially unlawful? Was I treated differently from colleagues in a protected class? Were there any promises made to me that were not kept? Were my final wages fully paid? If the answer to any of these is "maybe," consult an employment attorney before signing. Many offer free initial consultations and may take employment cases on contingency.

The ADEA Review Period: Special Rules for Workers Over 40

If you are 40 years of age or older and your severance agreement includes a waiver of age discrimination claims under the Age Discrimination in Employment Act (ADEA), you have statutory rights that cannot be waived in the agreement itself. The Older Workers Benefit Protection Act (OWBPA) requires that you be given at least twenty-one days to consider the agreement (forty-five days in a group layoff) and seven days after signing to revoke.

This means even if you sign immediately, you have a seven-day revocation window during which the agreement is not final. Any agreement that tries to waive this revocation right is unenforceable. The review period cannot be shortened by the employer — and if the employer pressures you to sign before the twenty-one days are up, that pressure itself may give you grounds to challenge the release.

How to Negotiate Better Severance

Severance is almost always negotiable, and most employers expect some pushback. The employer's baseline offer is rarely their best offer. Start by understanding what leverage you have: are you being let go for performance reasons, or is this a role elimination? Is the company under time pressure to close the deal (end of quarter, regulatory filing deadline)? Are there any potential legal claims that make it valuable for the company to have a clean release?

Common things to negotiate: (1) increase the severance period — one week per year of service is a common baseline; six to eight weeks is often achievable; (2) extend benefits continuation — COBRA is expensive, and asking the company to subsidize your premiums for the severance period is reasonable; (3) accelerate vesting of unvested equity if you are close to a vesting cliff; (4) adjust the non-disparagement clause to be mutual — if you agree not to disparage them, they agree not to disparage you; (5) remove or narrow the non-compete in the separation agreement if one is included.

Always respond in writing. A simple email saying "I have reviewed the severance agreement and would like to discuss a few points before I sign" opens the negotiation without closing any doors. Do not sign under pressure, and do not let an employer tell you the offer expires in twenty-four hours — that pressure tactic is almost never real.