Severance Agreement Red Flags: What to Check Before You Sign the Release

You are usually selling your legal claims

The heart of almost every severance agreement is a "release of claims." In plain terms, the money is consideration for you giving up your right to sue the company for anything that happened during your employment — wrongful termination, discrimination, unpaid wages, harassment, retaliation, and more. That can be a perfectly fair trade. But it means you should understand what you might be giving up before you sign. If you believe you were let go for an illegal reason, the value of the claim you are releasing could be far more than the severance on offer, and this is the moment to get advice.

Is the payment actually fair?

There is no legal formula for severance in most private jobs — it is whatever you negotiate, unless a contract or policy promised a specific amount. A common starting point is one to two weeks of pay per year of service, but senior roles and negotiated contracts can be far more. Check whether the amount reflects your tenure and level, whether it is paid as a lump sum or strung out over months, and what happens to it if you find a new job quickly. The first number offered is frequently not the final number, especially if you have any leverage.

The time you are given to decide

Federal law gives you specific time to consider some releases. If you are 40 or older, the Older Workers Benefit Protection Act generally requires that you be given at least 21 days to consider an agreement that releases age-discrimination claims (45 days in a group layoff), plus 7 days after signing to revoke it. If an employer is pushing you to sign a release of age claims in an afternoon, that is both a red flag and potentially a legal problem. Even where the law does not mandate a waiting period, you are entitled to take reasonable time and to have the agreement reviewed.

Non-disparagement — and what you can still say

Most severance agreements bar you from saying anything negative about the company. Read how broad it is, and whether it is mutual — ideally the company agrees not to disparage you either, which helps with references. Be aware of an important limit: recent laws, including the federal Speak Out Act and several state statutes, restrict the enforceability of non-disparagement and confidentiality clauses that would silence you about unlawful harassment or discrimination. A clause that tries to stop you from reporting illegal conduct to a government agency is especially suspect.

Confidentiality of the agreement itself

Many agreements require you to keep the severance terms secret. That is common, but check the carve-outs: you should still be able to tell your spouse, your lawyer, and your tax advisor, and you should not be barred from discussing your own wages or working conditions, which is protected activity for many employees under the National Labor Relations Act. An overly broad confidentiality clause that tries to stop you from ever discussing your pay is worth pushing back on.

Your right to report to the government stays

No matter what a release says, you generally cannot be stopped from filing a charge with, or cooperating with, agencies like the Equal Employment Opportunity Commission, the Securities and Exchange Commission, or OSHA. A well-drafted agreement will say this explicitly. If yours tries to bar you from talking to government regulators or from collecting a whistleblower award, that is a serious red flag — and in some cases an unenforceable or even unlawful term.

What happens to your benefits, equity, and PTO

Severance is more than the headline number. Check how your health insurance is handled — whether the company subsidizes COBRA continuation and for how long. Look at what happens to unvested equity (usually forfeited, but sometimes negotiable) and vested options (you often have a limited window to exercise them, which can be costly). And confirm you are being paid for accrued, unused PTO if your state or the policy requires it. These items can add up to as much as the cash severance.

Non-compete and non-solicit obligations on the way out

Read whether the agreement reaffirms or adds restrictive covenants. Some severance deals quietly extend a non-compete or non-solicit as a condition of the payout. If you are being asked to accept new restrictions on your next job in exchange for severance, that is a real cost you are paying, and it should factor into whether the money is worth it. In states that limit or void non-competes, you may be able to negotiate these away entirely.

Never sign under pressure

The most important rule is the simplest: do not sign on the spot. Employers sometimes present severance as a take-it-now-or-lose-it ultimatum to stop you from reading it carefully or getting advice. You are almost always entitled to take it home, read it slowly, and have it reviewed. A company acting in good faith will give you that time; one that refuses is telling you something. The payout is rarely actually expiring that day, whatever the manager in the room implies.

What you can negotiate

Severance is more negotiable than people assume, especially if you have any leverage — a potential claim, a key role, or knowledge the company would rather keep quiet. Reasonable asks include:

• A larger payment, or a lump sum instead of installments.
• A neutral or positive reference, and a mutual non-disparagement clause.
• Subsidized COBRA for a defined period.
• More time to exercise vested stock options.
• Removal or narrowing of any non-compete being imposed.

Clawbacks, cooperation, and other fine print

A few quieter clauses can sting later. A clawback provision lets the company take back severance if you breach a term — sometimes triggered by something as minor as an alleged confidentiality slip, which gives them leverage over you long after you have gone. A cooperation clause may require you to assist with future litigation or investigations, potentially for years, often with vague or no compensation for your time. And a "no rehire" clause can quietly bar you from ever working for the company or its affiliates again, which matters more than it sounds if those affiliates include much of your industry.

None of these are automatically unacceptable, but each is a real obligation you are taking on in exchange for the payout, and each is negotiable. Read them as part of the total price of the deal, not as harmless boilerplate. If a clause commits your future time or restricts your future work, it has a cost, and you are entitled to weigh that cost against the money being offered.

When to bring in a lawyer

For a routine layoff with a fair payout and a clean release, many people are comfortable reviewing the agreement themselves. But there are situations where a short consultation with an employment lawyer pays for itself many times over: if you believe you were fired for an illegal reason (discrimination, retaliation, whistleblowing), if the severance is large, if the agreement imposes a new non-compete, or if anything in the document confuses you. Many employment attorneys offer a flat fee to review a severance agreement, and the value of a claim you might be unknowingly releasing can dwarf that cost. The release is permanent; the advice is cheap by comparison.

What if you have already signed?

If you signed and now have second thoughts, your options depend on the agreement and the timing. If the release covered age-discrimination claims and you are 40 or older, federal law usually gives you a seven-day window to revoke after signing — check the agreement for that revocation right and act fast. Outside that window, a signed release is generally binding, though there are narrow exceptions where an agreement can be challenged, for example if it was signed under genuine duress or fraud, or if it tries to waive rights that cannot legally be waived. Those are hard, fact-specific arguments, which is exactly why the time to get it right is before you sign, not after.

The bottom line

A severance agreement trades money for your legal claims, and it is written to protect the employer — so read it slowly, take the time you are owed, and do not sign under pressure. The clauses that matter most are the release, the deadlines, the non-disparagement and confidentiality terms, and what happens to your benefits and equity. If you want a fast, plain-English read on what you are actually signing, ClauseAudit reviews your severance agreement in about a minute, flags every clause above, explains what each one costs you, and gives you the language to negotiate. On a day this stressful, it helps to know exactly what is in front of you.