Severance Agreement Checklist: 9 Things to Check Before You Sign
Being let go is stressful, and severance paperwork often arrives with a deadline. Slow down: a severance agreement is a contract, and in exchange for the money you are usually giving up important rights.
- Most severance agreements trade money for a release of legal claims against the employer.
- Workers 40 and older get extra time to review and a window to change their mind, under federal law.
- Many terms are negotiable, and a short consult with an employment lawyer can be worth it.
1. What you’re giving up (the release)
Almost every agreement includes a “release” or “waiver” in which you agree not to sue the company. The EEOC: Understanding waivers of discrimination claims in employee severance agreements explains that a waiver of discrimination claims must be knowing and voluntary, and that you can’t be asked to give up your right to file a charge with the EEOC.
2. Extra protections if you’re 40 or older
Under the Older Workers Benefit Protection Act, as the EEOC explains, a valid waiver of age discrimination claims must be in writing and easy to understand, must advise you in writing to consult a lawyer, and must give you at least 21 days to consider it (45 days if it’s part of a group layoff) plus 7 days to revoke it after you sign. Group layoffs also require the employer to give you information about who was selected and who wasn’t.
3. The money
Check the amount, how it’s calculated (often weeks of pay per year of service), whether it’s a lump sum or paid over time, and whether it’s conditioned on signing by a date.
4. Pay you’re owed anyway
Your final paycheck for hours worked isn’t severance. Ask how accrued vacation, earned commissions and bonuses will be handled; rules vary by state and company policy.
5. Health insurance
Ask whether the company will pay any part of COBRA premiums. See our COBRA guide.
6. Restrictive covenants
Look for non-compete, non-solicitation, confidentiality and non-disparagement clauses. Make sure you understand what work you can and can’t do next.
7. Equity and retirement
What happens to unvested stock or options? When is your last 401(k) contribution? See how 401(k) matching works.
8. References and the story
You can often negotiate a neutral reference, agreed wording about your departure, or a resignation instead of a termination.
9. Unemployment benefits
Severance can affect when unemployment benefits start in some states. Check with your state’s agency; see our unemployment guide.
How to negotiate
Ask politely, in writing, for specific items (more weeks, COBRA help, a later end date, a neutral reference). Point to your tenure and results. If a lot of money or a non-compete is involved, a consultation with an employment lawyer is usually money well spent.
This article is general information, not legal advice.
Header image: Photo: “Prof Biju Varkkey – Paulien Osse – after signing contract for Asian WageIndicato” by WageIndicator.org – Pictures from Paulien Osse and, BY 2.0 (cropped).