Severance Agreements: What to Look for Before You Sign

Getting laid off is stressful enough. Then the HR team sends you a document and tells you to sign it within 21 days. Before you sign, understand what you're agreeing to — because a severance agreement is a bilateral contract where you're giving up something real in exchange for the severance payment. Here's how to think through what you're getting and what you're giving up.

What Severance Agreements Are (and Aren't)

A severance agreement — also called a separation agreement or separation and release of claims — is a contract between you and your employer. You agree to release legal claims against the company; the company agrees to pay you money and possibly provide other benefits.

Severance payments are not legally required in most situations. At-will employment means the company can let you go without any obligation to pay severance beyond your final paycheck for hours worked. Severance is offered voluntarily and in exchange for your release of claims.

This exchange is the fundamental structure: the company is buying your potential legal claims against them for the price of the severance. Before you sign, the question to ask is whether the price is fair relative to what you're releasing.

What You're Getting

The typical components of a severance package include:

Cash payment: The most common structure is a number of weeks or months of pay. Benchmarks vary widely — some companies offer 1-2 weeks per year of service; others offer flat amounts (e.g., 2 months for everyone regardless of tenure). More senior employees may receive 3-6 months or more.

Benefits continuation: COBRA extension (typically through the end of the severance period) or direct payment of insurance premiums. Health insurance continuation is often worth more than people realize, particularly in high-cost markets.

Equity treatment: Does any unvested equity accelerate? Usually not by default, but sometimes a separation agreement includes equity acceleration as part of the deal. This is worth asking about, particularly if you were close to a vesting date.

Outplacement services: Career counseling and job search support. Less valuable than cash, but sometimes included.

Reference agreement: Confirmation of the company's reference policy — what they'll say, and to whom.

What You're Giving Up: The Release

The release of claims is the centerpiece of what you're agreeing to, and it deserves careful attention.

A general release of claims typically releases all claims you have against the company as of the date you sign — including claims you don't know about. This includes potential discrimination claims, wage and hour claims, retaliation claims, and any other employment-related legal theory. You are agreeing not to sue the company for any of these things.

The release is usually broad: it covers the company, its affiliates, officers, directors, employees, and agents. It covers all claims "known and unknown" in many jurisdictions (the "unknown claims" language is addressed by specific statute in some states, like California Civil Code 1542).

Before you sign, consider: do you have potential claims that might be worth more than the severance amount? If you were discriminated against, harassed, or retaliated against, those claims don't disappear if you sign the release — they're extinguished. If the potential value of those claims exceeds the severance, you may want to consult an attorney before signing.

Non-Disparagement and Cooperation Obligations

Most severance agreements include a non-disparagement clause — you agree not to make negative statements about the company, its management, or its products. The scope and duration vary. Some agreements have mutual non-disparagement (the company also agrees not to disparage you); many are one-sided.

Cooperation obligations require you to assist the company with certain matters after your departure — typically litigation or regulatory inquiries where you have relevant knowledge. These can be burdensome if you're later called to provide documents or testimony. Look for limitations on what cooperation is required, how much time you're expected to spend, and whether you're compensated for significant time investment.

Also check for extended confidentiality provisions. Your original employment agreement already includes confidentiality obligations — the severance agreement may add to or extend those.

Special Rules for Employees Over 40

The Older Workers Benefit Protection Act (OWBPA) creates mandatory requirements for severance agreements that release age discrimination claims (ADEA claims) for employees 40 and older:

• 21-day consideration period: The employer must give you at least 21 days to consider the agreement. You cannot be pressured to sign sooner (though you can voluntarily choose to sign before the 21 days expire).
• 7-day revocation window: Even after you sign, you have 7 days to revoke your signature. The agreement is not effective until this period expires.
• Explicit ADEA reference: The release must specifically reference the ADEA (Age Discrimination in Employment Act).
• Advice to consult an attorney: The agreement must specifically advise you in writing to consult an attorney before signing.

If you're 40 or older and the agreement doesn't include these provisions, the ADEA release may be invalid regardless of what you signed.

How to Evaluate Whether It's Fair

A few frameworks for evaluating whether a severance offer is worth accepting:

• What are you releasing? If you have no potential claims — no discrimination, no retaliation, no wage issues — then you're releasing very little and the severance is relatively pure upside.
• What's the market rate for your tenure? Research what other companies in your industry typically offer.
• What's your financial runway? If you have six months of savings, you have time to evaluate. If you don't, the calculus shifts.
• Is there equity on the table? Ask specifically whether any additional vesting is possible as part of the negotiation.
• Is the non-disparagement mutual? It should be.

The Bottom Line

Severance agreements are contracts, and you're the party with legal claims to offer in exchange. Before you sign a separation agreement, paste it into dott.legal for a free AI risk analysis that flags the release scope, non-disparagement terms, and any unusual provisions. For situations involving potential discrimination or retaliation claims, or significant equity treatment questions, attorney-validated review is $349 with 24-hour turnaround.