Severance Agreement — What You're Actually Signing Away

You've been laid off or asked to leave. HR slides a document across the table and explains you'll receive several months of pay in exchange for signing. It feels like relief — the company is taking care of you.

But a severance agreement is a contract, and what you're receiving money for is giving up legal rights. Before you sign, you need to understand what rights you're releasing, what deadlines apply, and what's negotiable.

What a Severance Agreement Actually Is

A severance agreement (also called a separation agreement or release of claims) is an exchange: the employer pays you money (or extends benefits), and in return you release them from legal liability for specified claims arising from your employment or termination.

The release is the heart of the agreement. Without a valid release, the employer has no reason to pay — they'd just let you go and deal with any claims if and when you filed them.

Most releases cover:

• Federal discrimination claims (Title VII, ADEA, ADA, ADEA)
• State discrimination claims
• Wrongful termination claims
• Wage and hour claims
• Breach of contract claims
• Any other claims "known or unknown" arising from the employment relationship

"Known or unknown" is significant. In California and some other states, there's a concept called a "Section 1542 waiver" — a specific statement that you're releasing claims you don't yet know about. Without this specific language, California courts may hold that a general release only covers known claims.

The ADEA Requirements for Employees 40+

If you're 40 years of age or older, the Older Workers Benefit Protection Act (OWBPA) imposes specific requirements on severance agreements that waive age discrimination claims:

21 days to consider. You must be given at least 21 days to review the agreement before signing (45 days for reductions in force involving multiple employees).

7-day revocation period. Even after you sign, you have 7 days to revoke your agreement. The agreement does not become effective — and no money needs to be paid — until this revocation period expires.

Written notice of rights. The agreement must specifically advise you to consult an attorney before signing.

Plain language. The release of ADEA claims must be written in plain language that a layperson can understand.

If the OWBPA requirements aren't met, the waiver of age discrimination claims is invalid — even if you signed. This doesn't void the entire agreement (you likely still waive non-ADEA claims), but it means you retain the right to bring an ADEA claim even after signing.

What You Can Usually Negotiate

The amount. The initial severance offer is almost never the employer's maximum. The standard "two weeks per year of service" or "one month per year" formulas are starting points. Push back, particularly if you suspect the termination was discriminatory, retaliatory, or in violation of your contract.

The continuation period for benefits. Health insurance continuation (COBRA) is expensive. Negotiating for the employer to pay your COBRA premiums for 3-6 months beyond what they've offered can be worth more than additional cash.

The non-disparagement clause. Standard severance agreements include a non-disparagement clause preventing you from making negative statements about the company. Propose that the clause be mutual — the company agrees not to disparage you either. Many employers will agree.

The reference policy. Negotiate what the company will say about you when future employers call. "Eligible for rehire" vs. "not eligible for rehire" matters. Getting a positive reference in writing — or a neutral "dates of employment and title only" policy — can be worth negotiating.

The non-compete and non-solicitation terms. Some severance agreements contain or reaffirm non-compete and non-solicitation obligations. If the non-compete in your original contract was broad, this is a second chance to narrow it.

The equity treatment. If you hold unvested equity, sometimes the severance negotiation is the moment to request accelerated vesting or an extended exercise window. Employers don't always volunteer this.

What You Generally Can't Negotiate Out

The release of claims itself. The employer is paying for a release. If you're not willing to release claims, you won't get the severance money. You can narrow the release — for example, ask that it not cover sexual harassment claims (now available under the 2022 federal law) — but some release of claims is the price of severance.

The cooperation clause. Most severance agreements include a provision requiring you to cooperate with future litigation involving your period of employment. Courts generally enforce these.

Before You Sign

Read the entire agreement, not just the payment terms. Note what claims you're releasing, whether the release is mutual, what post-employment obligations the agreement imposes (non-disparagement, confidentiality, cooperation, non-compete), and what the timeline is.

If you're 40 or older, use your full 21 days. Don't let HR pressure you to sign faster.

If you believe your termination involved discrimination, retaliation, or a contract violation, talk to an employment attorney before signing. The release you're signing forecloses those claims. If the claims have value, the severance offer should reflect it.

Have a severance agreement you're being asked to sign? Upload it to KlausClause and get a plain-English breakdown of what you're releasing and what the key terms actually mean.

This article is for informational purposes only and does not constitute legal advice.