Severance Agreement Review & Risk Analysis
Understand what your severance agreement really says before you sign.
See What You're Missing in Your Severance AgreementA severance agreement is offered when employment ends, typically during layoffs or terminations without cause. In exchange for severance pay and sometimes continued benefits, you are usually asked to waive your right to sue, agree to confidentiality, and accept non-disparagement and non-compete restrictions. These agreements arrive at a stressful time, which is exactly why they deserve careful review.
The most important thing to understand about a severance agreement is that it is a negotiation, not a take-it-or-leave-it offer. The employer is giving you something of value (money) in exchange for something of value from you (legal claims and restrictions). Understanding exactly what you are giving up helps you evaluate whether the trade is fair. This is informational, not legal advice.
Common Red Flags in Severance Agreements
Broad Release of Claims
Most severance agreements require you to release all legal claims against the employer. Make sure you understand what you are waiving. Some releases are so broad they could prevent you from filing claims for discrimination, unpaid wages, or other serious issues.
Hidden Non-Compete or Non-Solicitation Clauses
Severance agreements sometimes include or extend non-compete and non-solicitation restrictions. If you are already restricted by your employment contract, the severance agreement may extend the duration or broaden the scope.
Confidentiality About the Agreement Itself
Many severance agreements require you to keep the terms confidential. While common, this can prevent you from discussing the circumstances of your departure with future employers, colleagues, or even family members.
Inadequate Severance Amount
There is no legal formula for severance pay. While one to two weeks per year of service is a common benchmark, the right amount depends on your circumstances, the strength of any legal claims you might have, and how urgently the employer wants a signed release.
No Reference Letter or Employment Verification Terms
Without agreed terms for references, your former employer could give negative or neutral references that harm your job search. Negotiate specific language about what the employer will say when contacted by future employers.
Cooperation Clause Without Time Limits
Some severance agreements require you to cooperate with the employer on legal matters or transitions indefinitely. Without time limits and compensation for cooperation beyond a reasonable period, this becomes an ongoing unpaid obligation.
What KlausClause Checks For
When you upload your severance agreement, KlausClause automatically analyzes:
- ✓Scope of the release of claims and what legal rights you are waiving
- ✓Non-compete and non-solicitation restrictions added or extended by the severance
- ✓Confidentiality provisions covering the agreement terms themselves
- ✓Whether the severance amount is fair relative to your tenure and legal claims
- ✓Reference and employment verification terms
Severance Agreement Review Checklist
Before signing any severance agreement, verify each of these items:
- Review the full scope of the release of claims you are signing
- Confirm the severance payment amount, structure, and timeline
- Check for new or extended non-compete restrictions
- Verify non-solicitation provisions and their duration
- Look for confidentiality requirements about the agreement itself
- Review the non-disparagement clause for mutual vs one-sided terms
- Check reference letter and employment verification terms
- Verify benefits continuation terms (health insurance, equity vesting)
- Review the cooperation clause for time limits and compensation
- Confirm you have the full review period (21 days, or 45 days if over 40)
Related Contract Clauses
Learn more about specific clauses commonly found in severance agreements:
Frequently Asked Questions
What is a severance agreement?
A severance agreement is a contract offered to an employee upon termination that provides compensation and potentially other benefits in exchange for a release of legal claims, confidentiality, non-disparagement, and sometimes non-compete obligations.
Should I sign a severance agreement?
Do not sign immediately. You typically have 21 days to review (45 days if you are over 40 and the layoff affects multiple employees). Use that time to understand what you are giving up, evaluate the financial offer, and consider consulting with an attorney.
Can I negotiate a severance agreement?
Yes. Common negotiation points include the severance amount, benefits continuation period, non-compete scope and duration, reference letter terms, outplacement services, and the scope of the release. The employer expects some negotiation.
Related Contract Types
Further Reading
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