Severance Agreement Clauses: What You're Signing Away

What This Clause Does

A severance clause spells out what compensation you'll receive if the company terminates your employment. This can include weeks or months of base salary, continuation of health benefits, and accelerated vesting of equity. Without a severance clause, you're generally entitled to nothing beyond your last paycheck.

Severance is often conditioned on signing a release — meaning you give up your right to sue the company in exchange for the payment. Read the release carefully before signing. It's also worth checking whether severance applies only to layoffs or also to termination "without cause."

What This Looks Like in a Contract

"In the event Company terminates Employee's employment without Cause, Company shall pay Employee a severance amount equal to [X weeks/months] of Employee's then-current base salary, subject to Employee executing a general release of claims in a form acceptable to Company."

Red Flags to Watch For

• Severance is conditioned on signing a broad release within an unreasonably short window (less than 21 days)
• No severance provided for termination without cause
• Severance stops if you accept new employment, even at a much lower salary
• Release includes claims you haven't yet been paid for (e.g., unpaid commissions)

Need a Contract Template?

Understanding the clause is the first step. If you need a lawyer-reviewed contract to start from, these services offer templates for this type of agreement.

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Found in These Contracts

This clause commonly appears in the following contract types:

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