Losing or leaving a job can be a major life transition, but it can also open new opportunities, especially when handled thoughtfully. One of the most important documents you may receive during this time is a severance agreement. This legal contract outlines the terms under which you’ll receive final pay, benefits, and other post-employment considerations.
While a severance agreement can offer valuable financial support, it also includes legal conditions that may affect your future rights and career options. That’s why it’s essential to fully understand what you’re agreeing to before signing.
What Is a Severance Agreement?
A severance agreement is a legally binding contract between an employer and employee that finalizes the end of the employment relationship. It usually provides compensation or benefits in exchange for the employee waiving certain legal rights, most commonly, the right to sue the employer for claims related to their employment or termination.
Severance agreements are common when employees are laid off, positions are eliminated, or both parties agree to end the working relationship on specific terms.
Common elements of a severance agreement include:
- A lump-sum payment or continuation of salary for a set period
- Health insurance or COBRA coverage extensions
- Payment for unused vacation or paid time off
- Outplacement or job transition services
- Confidentiality, non-disparagement, or non-compete clauses
- A release of legal claims against the employer
Although these agreements are often presented as standard documents, each one is unique, and the details can have lasting implications.
Why Employers Offer Severance Agreements
Employers offer severance agreements for several reasons. While they provide financial support to employees, they also help employers reduce legal risk. By signing a severance agreement, an employee typically releases the company from potential claims such as discrimination, wrongful termination, or unpaid wage disputes.
However, the terms should be fair to both sides. A well-crafted severance agreement can help both the employee and employer part ways amicably, with clear expectations and mutual respect.
What to Look for Before Signing a Severance Agreement
Before signing, take time to carefully review each section of your severance agreement. Understanding the meaning and long-term impact of its provisions will help you make an informed decision.
Here are the most important elements to look for:
1. Severance Pay Amount and Timing
The first thing most people notice in a severance agreement is the payment amount. Review how much you’ll receive, when you’ll receive it, and whether it’s a lump sum or scheduled in installments.
You should also check whether the payment is conditional on signing the agreement and whether there are tax withholdings or deductions.
If you believe the amount is too low or inconsistent with your employment history, you may be able to negotiate a higher amount, especially if you have long tenure or specialized experience.
2. Health Insurance and Benefits Continuation
Healthcare coverage is one of the most valuable aspects of a severance agreement. Verify whether your employer will continue to provide health insurance, for how long, and under what conditions.
Some agreements include COBRA premium contributions or partial extensions of company-sponsored benefits. Review these terms carefully, as coverage gaps can be costly.
3. Release of Claims
This is one of the most important and most overlooked sections of a severance agreement. The release of claims clause means you agree not to sue your employer for any reason related to your employment or termination.
It often covers claims under federal and state laws, including discrimination, harassment, wage disputes, or wrongful termination. Once you sign, you typically waive your right to pursue these claims, even if you later discover new information.
Before agreeing to this clause, make sure you fully understand what rights you’re giving up and whether the severance pay fairly compensates you for doing so.
4. Confidentiality and Non-Disparagement
Many severance agreements include confidentiality and non-disparagement clauses. These sections restrict what you can say about the company after your departure and may prevent you from discussing the terms of the agreement or the reasons for your separation.
While confidentiality is standard, overly broad language could limit your ability to speak about your work experience or even explain your departure during job interviews.
A non-disparagement clause should also be mutual, meaning the employer agrees not to make negative statements about you either.
5. Non-Compete and Non-Solicitation Clauses
Some severance agreements contain non-compete or non-solicitation clauses that limit where you can work next or which clients and employees you can contact.
These restrictions can affect your career and future income, so it’s critical to understand their scope and duration. In Pennsylvania, non-compete clauses must be reasonable in time, geography, and purpose. If they seem too restrictive, an attorney may be able to help negotiate or narrow their terms.
6. Payment for Accrued Vacation or Bonuses
If you’ve earned vacation, commissions, or bonuses before leaving, check whether they’re included in your severance agreement. Employers sometimes omit these details, even though they’re often owed as part of final compensation.
If your employment contract or company policy promises payment for unused time, make sure it’s reflected clearly.
7. References and Job Assistance
A severance agreement can also specify how the employer will handle future references. Some include neutral reference clauses stating that HR will confirm only your title and dates of employment.
If possible, you can negotiate for a more supportive reference or a letter that highlights your contributions. A positive or neutral reference can make a significant difference when seeking new opportunities.
8. Deadlines and Signing Periods
Employees covered by certain federal laws, such as the Older Workers Benefit Protection Act (OWBPA), must be given specific timeframes to consider and revoke a severance agreement.
For example, employees over 40 generally have at least 21 days to review the agreement and 7 days after signing to revoke it. Even if these laws don’t apply to you, it’s still important not to rush the process. Use the time to review, ask questions, and consult with an attorney if needed.
9. Tax and Legal Implications
Severance payments may be subject to income tax or withholding. Some agreements also include provisions about how taxes are reported and paid.
An experienced attorney can review these details to ensure they’re handled correctly and that you’re not agreeing to unnecessary financial obligations.
Why You Should Have an Attorney Review Your Severance Agreement
Even though a severance agreement might seem straightforward, it’s still a complex legal contract. Every word matters, and small details can have big consequences.
An attorney can help you:
- Review the agreement for fairness and accuracy
- Identify clauses that could limit your rights or future employment
- Negotiate improved terms or benefits
- Ensure compliance with state and federal employment laws
Having a lawyer review your severance agreement doesn’t mean you’re preparing for conflict. it means you’re protecting your rights and making sure you leave your job on the best possible terms.
Can You Negotiate a Severance Agreement?
Yes. Many people don’t realize that severance agreements are negotiable. Employers often expect some discussion before finalizing the terms, especially for higher-level positions or long-term employees.
Common areas to negotiate include:
- Additional pay or extended benefits
- Shorter non-compete durations
- Neutral or positive reference letters
- Timing of payments or continuation of bonuses
When handled professionally, negotiations can be mutually beneficial. The goal is to leave on good terms while ensuring that the agreement truly supports your next steps.
The Role of Severance Agreements in Career Transitions
A severance agreement doesn’t just end a job. It helps you move forward with clarity and confidence. By addressing key issues such as pay, benefits, and legal protections, the agreement provides stability during a time of transition.
When carefully reviewed and customized to your needs, it can create a foundation for your next chapter, whether that’s a new role, retirement, or career change.
Taking time to understand the details of your severance agreement is not about conflict. It’s about empowerment. With the right information and support, you can make decisions that protect both your rights and your future opportunities.
Contact Antanavage Farbiarz
If you’ve been offered a severance agreement or believe one may be coming, take the time to review it carefully before signing. A short consultation can help you understand your options and ensure the terms are fair and beneficial. Taking proactive steps today helps start your next chapter with confidence and peace of mind.
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