Severance Agreements: What to Know Before You Sign

When you're fired, your employer may offer you a severance package in exchange for signing an agreement. Before you sign anything, you need to understand what you're agreeing to — because the consequences can be permanent.

What Is a Severance Agreement?

A severance agreement is a contract between you and your employer. In exchange for severance pay (and sometimes other benefits), you agree to release all legal claims against the company. That release is the critical part.

What You're Giving Up

By signing a severance agreement, you typically waive your right to sue your employer for:

Wrongful termination
Discrimination (race, sex, age, disability, etc.)
Retaliation
Wage and hour violations
Any other employment-related claims

Once you sign and the revocation period passes, that waiver is generally permanent and enforceable.

The 21-Day Rule (Age Discrimination)

If you are 40 years of age or older, the Older Workers Benefit Protection Act (OWBPA) gives you specific rights when signing a severance agreement that waives ADEA (age discrimination) claims:

You must be given at least 21 days to consider the agreement (45 days if it's part of a group layoff)
You have 7 days to revoke the agreement after signing
The agreement must specifically advise you to consult an attorney

If the agreement doesn't comply with OWBPA, the waiver of age discrimination claims may be unenforceable.

What to Look For

Before signing, review these key provisions:

Scope of release: Does it cover only claims through the date of signing, or does it try to waive future claims?
Non-disparagement clause: Are you prohibited from saying anything negative about the company?
Non-compete or non-solicitation: Are you restricted from working for competitors or contacting former clients?
Confidentiality: Are you required to keep the agreement and its terms secret?
Cooperation clause: Are you required to assist the company in future litigation?

Never Sign Immediately

Employers sometimes pressure employees to sign quickly. Don't. You have time — use it. The 21-day review period for employees 40+ is a legal right, not a courtesy.

Before signing any severance agreement, consult with an employment attorney. Many offer free consultations. An attorney can assess whether the severance amount is fair given the strength of any potential claims, negotiate better terms, and identify provisions that should be modified or removed.

Is the Severance Amount Fair?

There is no legal requirement for any particular severance amount. One week per year of service is common, but it's just a starting point. If you have strong legal claims, the value of those claims should factor into whether the severance offered is adequate compensation for releasing them.