A severance agreement isn’t just a payment document—it’s a legal exchange. The employer offers new compensation or benefits, and the employee typically releases potential legal claims and accepts certain post-employment obligations. Both sides should understand that trade-off before signing.
These agreements often arrive at a difficult moment. The employer wants finality, and the employee may still be processing the loss of a job. That pressure can make the agreement feel like just another step in the separation process. It is not.
This article doesn’t address any particular state’s severance laws. Because state-law requirements vary, employers, employees, and counsel should review the applicable law before signing or reusing a severance agreement.
Severance Isn’t Usually Automatic
One misconception is that severance automatically follows termination. Usually, it does not.
An employer may owe severance if an employment contract, severance plan, company policy, collective bargaining agreement, or statute creates the obligation. When severance is mandatory, the governing document usually controls the amount and terms. In that situation, there may be less room to negotiate unless there’s a genuine dispute over entitlement, the amount owed, or a separate legal claim, such as discrimination, retaliation, or unpaid wages.
More often, severance is discretionary. Employers may offer it during a layoff, reorganization, or individual separation to recognize service, provide transition assistance, or obtain a release of claims.
That distinction matters. You should avoid suggesting that a discretionary offer is a guaranteed benefit or evidence of a broader company practice. Employees should understand that severance is usually offered in exchange for something, such as a release of claims, confidentiality obligations, nondisparagement terms, or other post-employment restrictions.
You may be more willing to negotiate individualized terms when the termination doesn’t involve serious misconduct, the employee is senior or specialized, or there’s a legitimate dispute about the separation. But the basic principle is the same: Severance isn’t simply a goodbye payment—it’s a legal exchange.
Final Pay is Different
The first question both sides should ask is simple: “What is already owed?”
Final wages, earned commissions, accrued paid time off when required by law or policy, and other vested compensation must be paid on time, regardless of whether the employee signs a severance agreement. You create unnecessary risk when you appear to condition already-earned compensation on a release of claims.
You should pay earned amounts separately and on the required schedule. Employees should confirm that the payment labeled “severance” is truly a new consideration, not money they were already entitled to receive.
A clean agreement should identify what the employee is receiving in exchange for the release. Severance may be calculated based on tenure, compensation, position, or the circumstances of the separation. It may include a lump-sum payment, salary continuation, COBRA or benefits assistance, accelerated or continued vesting, resolution of a disputed bonus or commission, outplacement support, a neutral reference, agreed announcement language, or other negotiated transition terms.
Release is the Heart of the Deal
For employers, the central benefit of a severance agreement is the release of claims. In exchange for severance, the employee usually agrees not to pursue employment-related claims arising from the employment relationship or separation, such as discrimination, retaliation, wrongful termination, breach of contract, unpaid wages, or similar disputes.
But broader isn’t always better. A release should be clear, understandable, and limited to claims that may lawfully be waived. Employees should ask themselves one basic question before signing: “What am I giving up, and do I know enough to make that decision?”
Certain rights cannot be waived. A well-drafted agreement should preserve the employee’s ability to:
- File or participate in charges with government agencies;
- Apply for unemployment benefits or workers’ compensation;
- Pursue claims arising after the agreement is signed; and
- Enforce the severance agreement itself.
If the employee is 40 or older, the Older Workers Benefit Protection Act (OWBPA) adds additional safeguards. Among other requirements, the release must be known and voluntary, specifically reference Age Discrimination in Employment Act (ADEA) claims, advise the employee to consult counsel, provide at least 21 days to consider the agreement (45 days in group terminations), and include a nonwaivable, seven-day revocation period. These safeguards cannot be negotiated away.
First Draft May Not be the Final Deal
Severance negotiations aren’t always just about money. Practical, nonmonetary terms can often close the gap while still giving you the finality you need.
Common negotiation points include:
- Payment amount or timing;
- COBRA or benefits assistance;
- Mutual nondisparagement;
- Neutral reference language;
- Confidentiality exceptions (for family, advisors, or legal process);
- Separation announcement language;
- Return or retention of low-value company property after company data is removed; and
- Narrowing or waiving nonsolicitation, noncompetition, or other post-employment restrictions.
Post-employment restrictions also deserve careful review. You should tailor those clauses to legitimate business interests and current law. Employees should consider how the restrictions may affect future jobs, client relationships, professional reputation, or their ability to discuss the separation.
The goal isn’t to renegotiate every sentence. The goal is to identify the terms that matter most and align them with the purpose of the agreement. For employers, reasonable revisions can move the agreement across the finish line while preserving finality and reducing litigation risk. For employees, targeted changes can provide meaningful transition support while clarifying the obligations that continue after employment ends.
Takeaway
Severance agreements can serve both employers and employees. You can obtain closure, reduce risk, and protect legitimate business interests. Employees can receive transition pay, benefits, and certainty.
But these agreements shouldn’t be treated as forms pulled from an old filing cabinet. You should confirm compliance with current law, and employees should understand what they are receiving, what they are releasing, and what obligations will continue.
A good severance agreement does more than end employment. When carefully drafted, it defines the legal peace that follows.
Emily E. Brodner (associate) and Juliet S. Burgess (founding partner) are attorneys at the Burgess Law Group specializing in labor and employment law, intellectual property, and commercial litigation. www.theburgesslawgroup.com.