5 Things to Know Before Signing a Severance Agreement

Why This Matters

A severance agreement is a legal contract. When you sign it, you are almost certainly waiving your right to sue your employer for wrongful termination, discrimination, wage theft, and a range of other potential claims — in exchange for the severance payment. That is a significant trade-off, and it deserves careful consideration before you put pen to paper.

Here are the five things that matter most.

1. You Almost Always Have Time to Think

Employers frequently create artificial urgency around severance agreements. "We need this back by Friday" is a common pressure tactic. In reality, your legal rights depend on your age:

• If you are 40 or older: The Age Discrimination in Employment Act (ADEA) gives you a minimum of 21 days to review the agreement, and 7 days to revoke your signature even after signing. This is federal law — an employer cannot waive it.
• If you are under 40: There is no federal minimum review period, but many states provide protections. A reasonable timeframe is still expected.

If your employer is pressuring you to sign within 24–48 hours and you are over 40, that pressure may itself be a legal problem. At minimum, do not let urgency stop you from reading the document thoroughly.

2. Understand Exactly What Claims You Are Waiving

The release of claims section is the heart of any severance agreement. It will typically be written in broad, sweeping language waiving all claims "known and unknown" against the employer. Before you sign, ask yourself:

• Were there any issues with your pay, overtime, or commissions that were never resolved?
• Do you believe your termination was related to your age, race, gender, disability, or a protected activity like whistleblowing?
• Were you denied a bonus or equity payout that you believe you earned?
• Did you experience harassment or a hostile work environment?

If any of these apply, signing a broad release of claims could mean giving up rights worth significantly more than the severance being offered. This is the situation where an employment lawyer consultation — often just one hour — pays for itself many times over.

3. Non-Compete Clauses Can Limit Your Next Job

Many severance agreements include or reference non-compete and non-solicitation clauses. These can restrict:

• Which companies you can work for (often direct competitors)
• Which clients or colleagues you can contact
• For how long (commonly 6–24 months)
• In which geographic areas

The enforceability of non-competes varies dramatically by state. California, for example, makes them almost entirely unenforceable. Other states enforce them strictly. If your non-compete is overly broad, there is often room to negotiate a narrower scope — especially if you are in a highly specialised field where it would effectively prevent you from working at all.

A non-compete that prevents you from working in your field for two years may be worth more to push back on than an extra week of severance pay.

4. Check What Happens to Your Benefits and Equity

Severance pay is only one part of the package. Before signing, clarify:

• Health insurance: When does coverage end? Will the company subsidise COBRA? Even a 60-day subsidy can be worth thousands of dollars.
• Unvested equity: Do any RSUs or stock options vest upon termination, or are they forfeited? Is there an option exercise window? Some companies extend it from 90 days to one year for laid-off employees — ask.
• Bonus proration: If you were tracking toward an annual bonus, is a prorated amount included? It should be.
• PTO payout: Some states (California, Colorado, Illinois) require employers to pay out accrued vacation. Others do not. Know your state's rules.

5. The First Offer Is Rarely the Final Offer

Employers expect negotiation on severance, particularly from experienced employees. Studies consistently show that the majority of employees who ask for more receive something — even if it is not everything they asked for. The worst answer you can receive is no.

Effective negotiating points include: tenure, the difficulty of replacing your skills, any concerns you have about the circumstances of your termination, and comparable market packages for your level. Keep the tone professional and focus on specific asks rather than general dissatisfaction.

If you are uncomfortable negotiating directly, a single consultation with an employment lawyer to review the agreement and provide a negotiating strategy can be extremely valuable — and many offer a free initial call.