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Severance Agreement

What a severance agreement trades, which claims it can and cannot release, the special rules for workers aged 40 and over, and the clauses worth reading twice.

Informational only - this is not legal advice. These definitions explain general legal vocabulary in plain English. They are not advice about your situation, reading them creates no attorney-client relationship, and the law differs from state to state and changes over time. For advice you can rely on, speak to a lawyer licensed in your state.

Looking for a lawyer rather than a definition? Skip to the state-by-state list of Wrongful Termination law firms.

What it means

No federal law requires an employer to pay severance. When an employer offers it, the payment is almost always conditioned on a release: the employee gives up the right to sue over the employment and its end, in exchange for money or benefits the employee would not otherwise receive. Severance can also be owed rather than offered, under an employment contract, a union agreement or a written severance plan; a plan is often governed by the federal benefits law ERISA, with its own claims process.

A release is enforceable if it is knowing and voluntary, but some rights cannot be signed away. An employee cannot waive the right to file a charge with the EEOC or to take part in its investigation, though they can waive the right to recover money from it. Claims for unpaid minimum wage or overtime generally cannot be released privately without approval from the Department of Labor or a court. Vested retirement benefits, unemployment benefits and workers' compensation are usually unaffected. For workers aged 40 and over, the Older Workers Benefit Protection Act adds strict requirements before age claims are released: the agreement must be written in plain language, refer to the age law by name, advise the worker in writing to consult a lawyer, and give a set period to consider and a further period to revoke after signing; in a group layoff the period is longer and the employer must disclose the ages of those selected and not selected.

The other clauses decide what the agreement is worth. A non-disparagement or confidentiality clause may be limited by law: the National Labor Relations Board has held that broad versions offered to non-supervisory employees can unlawfully restrict their labor-law rights, and federal law makes a pre-dispute nondisclosure clause unenforceable in a later sexual harassment or assault dispute. Check whether a non-compete is being added or extended, how the payment is scheduled, whether it is reduced for unemployment benefits, and what happens to health coverage, bonuses and equity. Severance is taxed as wages.

Where this comes from

Older Workers Benefit Protection Act, 29 U.S.C. § 626(f) (knowing and voluntary waiver of age claims; group-program disclosures at § 626(f)(1)(H)); EEOC regulation, 29 C.F.R. § 1625.22. Non-waiver of EEOC charge filing: 29 U.S.C. § 626(f)(4); EEOC v. Waffle House, Inc., 534 U.S. 279 (2002) (EEOC remedies independent of private agreement). Wage-claim releases: Brooklyn Savings Bank v. O'Neil, 324 U.S. 697 (1945); Department of Labor supervised settlements, 29 U.S.C. § 216(c). Severance plans: ERISA, 29 U.S.C. § 1002(1). Confidentiality and non-disparagement clauses: McLaren Macomb, 372 NLRB No. 58 (2023), applying 29 U.S.C. §§ 157-158. Pre-dispute nondisclosure: Speak Out Act, 42 U.S.C. §§ 19401-19404. Severance as wages for FICA: United States v. Quality Stores, Inc., 572 U.S. 141 (2014).

When people hire a lawyer for this

Have an employment lawyer read a severance agreement before you sign it, especially if you believe the termination was discriminatory or retaliatory, you are giving up a bonus, commission or equity, or the agreement adds a non-compete. A lawyer can tell you what claims you are releasing and roughly what they are worth, which is the basis for asking for more. Do not sign in the room if you are pressed to; ask for the time the law allows, and keep a copy of everything you are given.

Worried about the cost? A lawyer can be hired for one part of a case only (limited-scope representation), may be paid from what a claim recovers (contingency fee), or may be free through a pro bono program or legal aid; a court can also waive its own filing fees.

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Part of the LawyerLand plain-English legal glossary. Definitions are written from primary sources - statutes and court rules - and each entry states the authority it rests on, or says plainly when the doctrine is state law with no national rule.

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