Severance Agreements: What to Look For Before You Sign

A severance agreement is a contract in which an employer offers you money or benefits after your job ends in exchange for your signature on a legal release — most importantly, a promise not to sue. Before you sign, you should understand exactly which legal claims you are giving up, whether the pay being offered is fair for that waiver, and whether the agreement contains restrictive terms like non-competes, non-disparagement, or confidentiality clauses. If you are 40 or older, federal law gives you specific time to review the offer and a window to change your mind after signing. The single biggest mistake people make is signing on the spot under pressure — you almost always have time to read, negotiate, and get the document reviewed first.

This article is general legal information, not legal advice. Laws vary by state and situation, and reading it does not create an attorney-client relationship. For advice about your case, talk to a licensed attorney.

Key Takeaways

• A severance agreement is a trade: the employer gives you pay or benefits, and in return you sign a release of claims — usually a promise not to sue over your employment or termination.
• Severance is generally not required by law. Most employers offer it voluntarily, by policy, or to buy peace, which means the terms are often negotiable.
• If you are 40 or older, the Older Workers Benefit Protection Act (OWBPA) requires the employer to give you at least 21 days to consider an agreement that waives age-discrimination claims (45 days in a group layoff), plus a 7-day revocation period after you sign.
• Watch for red flags: an overbroad release, a pressure to sign immediately, hidden non-compete or non-solicitation clauses, broad confidentiality and non-disparagement terms, and a waiver of claims that the law says you cannot waive.
• Some rights cannot be signed away — for example, your right to file a charge with the EEOC, claim unemployment benefits, or recover already-earned wages in many states.
• Severance rules and what can be waived vary by state, and the law in this area changes. Verify the rules where you work and consider having a licensed attorney review the agreement before you sign.

What a Severance Agreement Actually Is

A severance agreement (sometimes called a separation agreement or a separation-and-release agreement) is a legally binding contract that takes effect when your employment ends. At its core, it is an exchange. The employer offers something of value — typically a lump sum or continued salary, sometimes extended benefits or outplacement help — and in return you agree to give up something, usually your right to bring legal claims against the company.

It helps to separate two ideas people often blur together:

• Severance pay is the money or benefits the employer offers. This can come from a written policy, an employment contract, or simply a one-time offer at termination.
• The release of claims is the legal heart of the agreement — the language where you waive your right to sue. This is what the employer is really paying for.

Severance is generally not something the law guarantees. Unless you have a contract, a collective bargaining agreement, or a company policy that promises it, most U.S. employers are not required to pay severance at all. That is exactly why so much of an agreement is negotiable: the employer wants your signed release, and that gives you leverage you may not realize you have.

What You Are Really Releasing

The release is the provision to read most carefully, because it defines what you can never pursue once you sign. Most releases are written to be as broad as the law allows. A typical release asks you to give up "any and all claims" arising out of your employment and separation. In practice, that can include:

• Wrongful termination claims
• Discrimination claims based on age, race, sex, religion, disability, national origin, and other protected characteristics
• Retaliation claims
• Harassment and hostile work environment claims
• Wage and hour claims (in some states and circumstances)
• Breach of contract and certain tort claims

That breadth is the point — and the danger. If you believe you were pushed out because of your age, your disability, or because you reported something illegal, signing a general release typically ends your ability to sue over it. For background on the kinds of claims a release can extinguish, see our guides on wrongful termination and workplace discrimination employee rights.

Claims You Generally Cannot Waive

Not everything can be signed away, no matter what the document says. Depending on federal and state law, the following typically survive a release:

• The right to file a charge with the EEOC or a state fair-employment agency. You can waive the right to collect money from a private lawsuit, but you generally cannot be barred from filing a charge or cooperating with an agency investigation.
• Unemployment benefits. Eligibility is decided by your state, not by your employer's agreement, although the circumstances of your separation can affect it.
• Already-earned wages, accrued vacation (where state law requires payout), and vested retirement benefits. These are usually yours regardless of the release.
• Future claims. A release generally covers claims that already exist as of the signing date, not conduct that happens afterward.
• Workers' compensation and certain whistleblower claims, which many states protect from waiver.

Because what can and cannot be waived varies by state and by claim type, this is an area where general rules are only a starting point. Confirm the specifics for your situation.

Special Protections for Workers 40 and Older (OWBPA)

If you are 40 or older, federal law gives you extra protection when an employer asks you to waive age-discrimination claims under the Age Discrimination in Employment Act (ADEA). The Older Workers Benefit Protection Act (OWBPA) sets strict requirements for those waivers to be valid. An age-claim waiver generally must:

1. Be written in plain, understandable language.
2. Specifically refer to ADEA rights or claims by name.
3. Advise you in writing to consult an attorney before signing.
4. Give you at least 21 days to consider the agreement — or at least 45 days if the offer is made to a group as part of a layoff or exit-incentive program.
5. Provide a 7-day revocation period after you sign, during which you can change your mind and cancel the agreement.
6. In a group layoff, include disclosures about the job titles and ages of the employees selected and not selected for the program (often called the "OWBPA disclosure" or "decisional unit" information).

These rules matter. If an age-claim waiver does not meet the OWBPA's requirements, it is generally not enforceable as to your ADEA claims — meaning you might keep the severance money and still be able to pursue an age claim. The 7-day revocation period also cannot be waived or shortened. Do not let an employer tell you that you must sign before you leave the building; for workers 40 and over, the law specifically guarantees you time.

Note: OWBPA timing rules apply to the waiver of ADEA (age) claims. For workers under 40, there is no federal minimum review period, though many employers still offer a reasonable window. State law may add protections in either case.

Review and Revocation Timelines at a Glance

The table below compares typical timing rules. Treat these as general federal patterns to confirm — state law and the specific agreement can change them.

Situation	Minimum Review Time	Revocation Period	Source of the Rule
Worker 40+, individual termination, waiving age claims	At least 21 days	7 days after signing	OWBPA / ADEA
Worker 40+, group layoff or exit-incentive program	At least 45 days	7 days after signing	OWBPA / ADEA
Worker under 40	No federal minimum	No federal minimum	Varies by employer and state
Agreement with no age-claim waiver	No federal OWBPA minimum	Varies	Varies by state and contract

If you are within the review window, you do not have to use all of it — but you can. And if you are within the 7-day revocation period after signing an age-claim waiver, you generally retain the right to cancel in writing. Verify deadlines carefully, because missing a revocation deadline is usually final.

Red Flags to Catch Before You Sign

Severance agreements are drafted by the employer's lawyers to protect the employer. That does not make them improper, but it means the default terms favor the company. Watch for these common red flags:

• Pressure to sign immediately. "Sign today or the offer disappears" is a warning sign. For workers 40+, an immediate-signature demand on an age-claim waiver may itself violate the OWBPA.
• An overbroad or confusing release. If you cannot tell what you are giving up, that is a reason to slow down, not speed up.
• A hidden non-compete or non-solicitation clause. Some agreements quietly restrict where you can work next or whom you can contact. Enforceability of non-competes varies dramatically by state, and several states limit or ban them. Have these reviewed before you commit.
• Broad non-disparagement and confidentiality clauses. These can restrict what you are allowed to say about the company and the agreement. Some states now limit non-disparagement and confidentiality terms, especially in cases involving harassment or discrimination.
• A waiver of non-waivable rights. Language that purports to stop you from filing an EEOC charge, claiming unemployment, or reporting to a government agency may be unenforceable — and its presence is a signal to look closely at the rest.
• Severance that simply restates what you are already owed. If the "consideration" is just your final paycheck or earned vacation you were already entitled to, the employer may not be offering anything new in exchange for your release.
• Clawback or forfeiture terms that let the employer take the money back if you breach any clause.

If you spot any of these, that is a strong reason to consult a licensed Employment attorney before signing. You can find a lawyer near you to review the document and explain what each clause means for you.

Is the Money Fair? How to Evaluate the Offer

There is no national formula for severance, and amounts vary widely by employer, industry, seniority, and the reason for separation. A common (but not universal) starting point is one to two weeks of pay per year of service, though executives and people with negotiating leverage sometimes receive far more. Things to weigh:

• What you are giving up. The stronger your potential legal claims, the more your release is worth — and the more there may be to negotiate.
• Continued benefits. Does the offer extend health coverage, cover COBRA premiums for a period, or include outplacement services? These have real value beyond the cash figure.
• Unpaid wages or commissions. Make sure the agreement does not bury money you already earned inside the "severance" number. If you suspect unpaid wages or overtime, review your unpaid overtime and wage rights before signing anything.
• Tax treatment. Severance is generally taxable income, and how it is paid can affect withholding and timing.
• References and characterization of departure. Sometimes a neutral reference or an agreed-upon reason for separation matters as much as the dollars.

Remember that severance is frequently negotiable. A counteroffer — more pay, a longer benefits bridge, narrowing a non-compete, or removing a clause — is normal, not offensive. Many employers expect some back-and-forth.

Steps to Take Before You Sign

A calm, methodical approach protects you. A reasonable sequence looks like this:

1. Do not sign on the spot. Acknowledge receipt, but say you need time to review. For workers 40+, the law gives you that time for age-claim waivers.
2. Read the entire document, including attachments and any referenced policies. The important terms are often in the dense middle sections.
3. Identify the release and the restrictive covenants. Underline what you are waiving and any non-compete, non-solicitation, non-disparagement, or confidentiality clauses.
4. Gather your records. Collect your offer letter, employment contract, handbook, pay stubs, performance reviews, and any documentation of mistreatment, in case you have claims worth more than the offer.
5. Consider whether you may have a claim. If you believe the termination was discriminatory or retaliatory, understand that signing a general release typically ends those claims. You can also learn how to file an EEOC complaint — and note that some deadlines run from the date of the adverse action, not the signing date.
6. Get it reviewed. Have a licensed Employment attorney from our directory read the agreement. An attorney can explain what each clause means, whether the money matches what you are giving up, and what is negotiable.
7. Negotiate if appropriate, in writing, before the deadline.
8. Track every deadline — the review period and, if applicable, the 7-day revocation window.

Important Deadlines (Verify in Your State)

Timing in severance situations is unforgiving, and the rules vary. Treat these as general patterns to confirm, not fixed national rules:

• Review period: For age-claim waivers by workers 40+, at least 21 days individually or 45 days in a group layoff under the OWBPA. For others, whatever the employer offers — confirm in writing.
• Revocation period: 7 days after signing an age-claim waiver under the OWBPA. This window is generally firm; a late revocation usually will not count.
• Claim deadlines that keep running: Deadlines to file an EEOC charge (often 180 or 300 days from the discriminatory act, depending on your state) or other claims continue to run regardless of the severance offer. Do not assume an unsigned offer pauses them.

Because these timelines differ by state and by claim, verify them with a licensed attorney or the relevant agency rather than relying on a general figure.

How State Law Changes the Picture

Severance and what you can validly waive are shaped heavily by state law. Several themes recur:

• Non-compete enforceability ranges from near-total bans in some states to broad enforcement in others. A non-compete buried in a severance agreement may be unenforceable where you live — or fully binding.
• Non-disparagement and confidentiality limits. A growing number of states restrict these clauses, particularly when the underlying dispute involves harassment, discrimination, or retaliation.
• Final-pay and accrued-vacation rules. States differ on when final wages are due and whether unused vacation must be paid out.
• Waiver formalities. Some states impose their own requirements for a valid release of state-law claims, separate from the federal OWBPA rules.

Do not assume a rule you read about one state applies to yours. Confirm the current law where you work, and consult a licensed Employment attorney for a review tailored to your jurisdiction.

Helpful Resources

• The U.S. Equal Employment Opportunity Commission (EEOC) at eeoc.gov — for guidance on waivers of discrimination claims and the OWBPA.
• The U.S. Department of Labor (DOL) at dol.gov — for general information on wages, benefits continuation, and the WARN Act.
• Your state labor or fair-employment agency — for state-specific rules on final pay, unemployment, and what can be waived.
• A licensed Employment attorney in your state — the most reliable source for reviewing your specific agreement before you sign.

Frequently Asked Questions

Do I have to sign a severance agreement?

No. Severance is generally an offer, not an obligation, and you are not required to accept it. But if you decline, you typically forgo the severance pay and benefits being offered. Before deciding, weigh what you would receive against what you would be giving up in the release, and consider having a licensed attorney review the terms.

How long do I have to review a severance agreement?

If you are 40 or older and the agreement waives age-discrimination claims, the OWBPA generally gives you at least 21 days to consider it — or 45 days in a group layoff — plus a 7-day revocation period after signing. For workers under 40, there is no federal minimum, though many employers still offer a reasonable window. Verify the timeline in your offer and your state.

Can I still file an EEOC charge after signing a release?

Generally, yes. A release can waive your right to recover money in a private lawsuit, but it usually cannot bar you from filing a charge with the EEOC or cooperating in an agency investigation. Language that tries to prohibit filing a charge may be unenforceable. Note that signing a general release can still affect what you ultimately recover, so review it with an attorney first.

Is severance pay negotiable?

Often, yes. Because the employer wants your signed release, you may have room to negotiate more pay, extended benefits, a narrower non-compete, removal of certain clauses, or a neutral reference. A written, professional counteroffer is normal. An employment attorney can help you identify what is realistic to ask for based on your situation.

What happens if I sign and then change my mind?

If your agreement includes an OWBPA revocation period (for age-claim waivers by workers 40+), you generally have 7 days after signing to cancel in writing. Outside that window, or for agreements without a revocation provision, backing out is usually much harder once the contract is binding. Because the rules are strict and vary, confirm your options with a licensed attorney quickly.

Should I have a lawyer review my severance agreement?

It is often worth it, especially if the dollar figure is significant, you suspect discrimination or retaliation, or the agreement contains a non-compete, non-solicitation, or broad confidentiality clause. An attorney can explain what you are waiving, whether the offer is fair, and what is negotiable. Many employment attorneys offer consultations — you can find a lawyer near you through our directory and consult a licensed Employment attorney before you sign.