What to Sign (and Not Sign) in a Severance Agreement

The agreement is a contract, not a formality. Here is clause-by-clause what to accept, what to push back on, and what should make you call a lawyer.

The release: what you are giving up

The general release waives claims against the employer: discrimination, harassment, wage, and contract claims arising before the signing date. That is the employer's price for the package, and some release is unavoidable. What matters is the carve-outs: vested retirement benefits, workers compensation claims, unemployment rights, and the right to file (though not recover from) EEOC charges should be expressly preserved. A release that purports to waive earned wages or vested 401(k) benefits is a red flag; those generally cannot be waived.

Restrictive covenants

Non-competes limit where you can work next; non-solicitation clauses limit recruiting former colleagues or clients; confidentiality protects trade secrets. Evaluate each against your state's law: several states ban employee non-competes outright, and the FTC's rulemaking in this area has created additional uncertainty employers must navigate. Push for narrow scope (specific competitors, not entire industries), short duration (6 months, not 24), and a geographic limit tied to where you actually worked. A non-disparagement clause should be mutual; one-sided versions that gag you while the company says anything are negotiable.

Cooperation and clawback clauses

Cooperation clauses require you to help with future litigation or investigations. Accept them only with limits: reasonable notice, scheduled around your new job, and reimbursement of expenses and lost time. Clawback provisions that let the employer reclaim severance if you breach the agreement are common; make sure breach is defined (a technical violation should not forfeit everything) and that you get notice and a chance to cure before any clawback.

Payment terms to pin down

The agreement should state the exact amounts, payment dates, and tax treatment of each component: severance, PTO, bonus, COBRA subsidy. Vague language like eligible for a bonus at the company's discretion is worth little; a formula with a date is worth everything. Confirm whether payments continue if you find a new job (some salary-continuation plans offset new earnings; lump sums do not). Get the Section 409A compliance language right for deferred payments; botched deferred compensation triggers a 20 percent penalty tax.

Red flags

Call an employment lawyer if you see: pressure to sign in days (especially if you are over 40 and entitled to OWBPA consideration time); a waiver of claims you did not know you had, like unpaid overtime; confidentiality so broad it would prevent you from discussing the agreement with a lawyer or spouse (most agreements expressly permit both); or a release covering unknown future claims in states where that requires specific language. Also verify the consideration: the package must offer something beyond what you are already owed, or the release may lack enforceable consideration.

After you sign: the checklist

Once signed, calendar every date in the agreement: the revocation deadline, each payment date, the COBRA election deadline (60 days from the qualifying event), the deadline to exercise vested options, and the last day of any non-compete. Confirm the first payment actually arrives; payroll errors on severance are common, especially with pro-rated bonuses paid on a different cycle. Keep a copy of the signed agreement, the plan document, and all benefit election confirmations together. If a promised payment is late, follow up in writing before the next pay cycle, because leverage fades fast after separation.

Sources: U.S. EEOC; state non-compete statutes vary. Data current as of October 2026. Not legal advice.

Frequently asked questions

Do I have to sign a severance agreement?

No, but refusing usually means forfeiting the severance pay. The agreement is a contract trading a release of claims for the package; only sign if the trade is worth it.

What should a severance agreement include?

Exact payment amounts and dates, PTO and bonus treatment, COBRA terms, reference language, mutual non-disparagement, and carve-outs for vested benefits and unemployment rights.

Can I negotiate a non-compete in a severance agreement?

Often yes. Narrow the scope to specific competitors, shorten the duration, and limit the geography. Check your state's law first; several states ban them.

What is a clawback clause?

A provision letting the employer reclaim severance if you breach the agreement. Make sure breach is defined, and that you get notice and a chance to cure.

How long do I have to sign?

The agreement sets a deadline, but workers 40+ in covered programs get at least 21 days (45 for group layoffs) plus 7 days to revoke under the OWBPA.