A severance agreement is a contract in which an employer offers pay or benefits in exchange for you giving up certain legal claims. Employers are often not required to offer severance, so read the terms carefully before signing.
What it usually includes
- A payment, often based on years of service.
- Continued health coverage for a period.
- A release of legal claims against the employer.
- Confidentiality, non-disparagement and cooperation clauses.
- Sometimes a reference or neutral job verification.
What you may be giving up
Most releases waive your right to sue for things like discrimination or wrongful termination, though some rights cannot be waived, such as claims for unemployment benefits or workers' compensation. Understand exactly what you are releasing.
Time to decide
Workers aged 40 and older generally get at least 21 days to consider an agreement and seven days to revoke it after signing, and longer in group layoffs, under federal law protecting older workers. Others may get less time, but you can ask for more.
Before you sign
- Read the whole agreement and note deadlines.
- Ask what you will receive and when, and whether taxes are withheld.
- Check restrictive clauses such as non-competes.
- Negotiate. Many employers will improve terms, such as more pay, benefits or a better reference.
- Consider an employment attorney review, especially if you suspect discrimination or retaliation.
Frequently asked questions
Is severance taxable?
Generally yes, as wages.
Does signing affect unemployment benefits?
In some states severance counts as income and may delay benefits. Check with your state agency.