Severance Agreement
Severance Agreement Generator
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Sample Severance Agreement Generated by Legal Tank
Severance Agreement
Parties
This Severance Agreement and General Release ("Agreement") is entered into between [Employer Name], a [State] [entity type] with its principal place of business at [Address] ("Company"), and [Employee Name], an individual residing at [Address] ("Employee"). This Agreement sets forth the terms under which the Company will provide severance benefits to Employee in connection with the termination of Employee's employment.
Employee has been employed by the Company since [Date] and most recently held the position of [Title]. The Parties acknowledge that Employee's employment is at-will and that the Company has no obligation to provide severance benefits except as expressly set forth in this Agreement. Employee acknowledges that the severance benefits provided hereunder constitute consideration to which Employee is not otherwise entitled.
Separation Date
Employee's last day of active employment with the Company shall be [Date] (the "Separation Date"). Employee's access to Company systems, premises, and resources shall be revoked as of the Separation Date. Employee shall receive payment for all earned but unpaid base salary through the Separation Date, plus accrued but unused vacation or PTO in accordance with Company policy and applicable state law governing final wage payments, regardless of whether Employee executes this Agreement.
The Company shall issue Employee's final paycheck in compliance with applicable state wage payment timing requirements, which vary by jurisdiction and may require payment on the Separation Date, the next regular payday, or within a specified number of days following termination. Any commissions or bonuses earned prior to the Separation Date shall be paid in accordance with the applicable plan documents and commission schedules.
Severance Payment
Subject to Employee's execution and non-revocation of this Agreement and compliance with all terms hereof, the Company shall pay Employee a severance payment equal to [Number] weeks/months of Employee's base salary, totaling $[Amount] (the "Severance Payment"). The Severance Payment shall be made in [lump sum / installments on the Company's regular payroll schedule] beginning on the first payroll date following the Effective Date of this Agreement, less applicable federal, state, and local withholdings.
The Severance Payment shall be treated as supplemental wages for federal and state income tax purposes and shall be subject to withholding at the applicable supplemental wage rate under 26 U.S.C. § 3402 and corresponding Treasury Regulations, or at the aggregate method, as determined by the Company's payroll department. The Company shall report the Severance Payment on IRS Form W-2 for the applicable tax year. The Company makes no representations regarding the tax treatment of the Severance Payment, and Employee is advised to consult an independent tax advisor.
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Benefits
Employee's eligibility for participation in the Company's group health insurance, dental, vision, life insurance, and disability insurance plans shall terminate as of the Separation Date or the last day of the month in which the Separation Date occurs, as determined by the applicable plan terms. The Company shall provide Employee with a COBRA election notice in compliance with 29 U.S.C. § 1166 within the timeframe required by law.
As additional severance consideration, the Company shall pay the full cost of COBRA continuation coverage (both employer and employee portions) for Employee and eligible dependents for a period of [Number] months following the Separation Date, or until Employee becomes eligible for substantially comparable group health coverage through another employer or government program, whichever occurs first. Employee shall promptly notify the Company upon becoming eligible for alternative coverage. Following the subsidized COBRA period, Employee may continue COBRA coverage at Employee's sole expense for the remainder of the applicable COBRA period.
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Release of Claims
In consideration of the Severance Payment and benefits provided herein, Employee hereby releases and forever discharges the Company and its officers, directors, employees, agents, parents, subsidiaries, affiliates, successors, and assigns from any and all claims, demands, causes of action, and liabilities of any kind, whether known or unknown, arising out of or related to Employee's employment or the termination thereof, including but not limited to claims under Title VII, the ADA, the ADEA, the FMLA, ERISA, the WARN Act, 42 U.S.C. § 1981, and all applicable state and local employment laws, as well as all claims for wrongful termination, breach of contract, tort, and equitable relief.
This Release does not waive: (a) rights or claims arising after the execution of this Agreement; (b) claims that cannot be waived by law; (c) the right to file a charge with the EEOC or participate in an EEOC investigation (though Employee waives the right to monetary recovery); (d) vested benefits under ERISA-governed plans; (e) workers' compensation claims; (f) unemployment insurance claims; or (g) the right to enforce this Agreement. Employee represents that Employee has not filed or caused to be filed any complaint, charge, or lawsuit against the Released Parties, and that Employee is not aware of any basis for any such complaint, charge, or lawsuit, other than as may be disclosed in writing to the Company.
ADEA Waiver and Revocation Period
In compliance with the Older Workers Benefit Protection Act ("OWBPA"), 29 U.S.C. § 626(f), Employee acknowledges being advised to consult with an attorney before signing this Agreement. Employee has been given [twenty-one (21) / forty-five (45)] calendar days to consider this Agreement (the "Consideration Period"). Employee may accept this Agreement at any time during the Consideration Period. Changes to this Agreement, whether material or immaterial, do not restart the Consideration Period.
Employee has seven (7) calendar days after signing this Agreement to revoke Employee's acceptance by delivering written notice of revocation to [Contact Name and Title] at [Address/Email] (the "Revocation Period"). This Agreement shall not become effective or enforceable until the day after the Revocation Period expires without revocation (the "Effective Date"). If Employee timely revokes, this Agreement shall be null and void, and Employee shall not receive any Severance Payment or benefits described herein.
Confidentiality
Employee shall keep the terms, conditions, and amount of the Severance Payment strictly confidential and shall not disclose such information to any person except Employee's spouse/domestic partner, attorney, or tax advisor who agree to maintain confidentiality. Employee's pre-existing confidentiality obligations regarding Company trade secrets and proprietary information survive termination and remain in full force and effect in perpetuity to the extent the information retains its trade secret status under the Defend Trade Secrets Act and applicable state law.
Nothing in this Agreement prohibits Employee from reporting possible violations of law to governmental agencies, participating in governmental investigations, or making disclosures protected by whistleblower statutes. To the extent any jurisdiction restricts confidentiality provisions in separation agreements involving claims of harassment, discrimination, or retaliation, this provision shall be interpreted and applied consistent with such restrictions.
Non-Disparagement
Employee shall not make, publish, or communicate any disparaging or defamatory statements regarding the Company, its officers, directors, employees, products, or services. The Company shall instruct its senior management and HR personnel not to make disparaging or defamatory statements about Employee. This provision does not restrict truthful statements made in legal proceedings, government investigations, or as otherwise required by law, nor does it restrict Employee's rights under Section 7 of the National Labor Relations Act.
Return of Property
On or before the Separation Date, Employee shall return all Company property, including without limitation laptops, mobile devices, keys, access badges, credit cards, documents, files, records, and all materials containing Confidential Information, whether in hard copy or electronic format. Employee shall permanently delete all Company data from personal devices and cloud accounts and shall certify in writing that all Company property has been returned and all electronic copies have been destroyed.
Employee represents that Employee has not forwarded, copied, or transmitted any Company documents, data, or Confidential Information to any personal email account, personal device, cloud storage, or third party, except as was necessary in the ordinary course of performing Employee's job duties with Company authorization. Any breach of this representation may constitute a material breach of this Agreement and may subject Employee to legal liability.
Non-Compete
For a period of [Number] months following the Separation Date, Employee shall not, directly or indirectly, engage in, be employed by, consult for, or have any ownership interest in (excluding passive investments of less than 2% in publicly traded entities) any Competing Business within the Restricted Territory. "Competing Business" means [Definition]. "Restricted Territory" means [Definition]. This restriction shall apply only to the extent enforceable under the laws of the governing jurisdiction, and the Parties acknowledge that certain states prohibit or restrict post-employment non-compete covenants.
Employee acknowledges that the non-compete restriction is supported by adequate consideration (the Severance Payment) and is reasonably necessary to protect the Company's legitimate business interests, including trade secrets, confidential customer relationships, and specialized training provided to Employee. If a court of competent jurisdiction determines any restriction is overbroad, the court is requested to modify the provision to the minimum extent necessary to make it enforceable rather than invalidating it entirely.
General Provisions
This Agreement shall be governed by and construed in accordance with the laws of the State of [State] without regard to conflict of law principles. This Agreement constitutes the entire agreement between the Parties regarding the subject matter hereof and supersedes all prior negotiations, representations, and agreements, whether written or oral, except for any surviving provisions of prior confidentiality, non-compete, intellectual property assignment, or arbitration agreements, which remain in full force and effect.
If any provision of this Agreement is held invalid or unenforceable, the remaining provisions shall continue in full force and effect, and the invalid provision shall be modified to the minimum extent necessary to make it enforceable. This Agreement may be executed in counterparts, each of which shall constitute an original, and may be delivered by electronic transmission. No amendment or waiver shall be effective unless in writing and signed by both Parties.
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What Is a Severance Agreement?
A severance agreement, also called a separation agreement, is a legally binding contract between an employer and a departing employee that defines the terms of the employee's exit from the company. The agreement typically provides severance pay and continued benefits in exchange for the employee's release of claims against the employer, including potential claims for wrongful termination, discrimination, harassment, or wage violations. Severance agreements are not required by federal law in most circumstances, making them a negotiated arrangement that must provide adequate consideration to be enforceable.
The fundamental structure of a severance agreement involves a trade: the employer offers financial compensation and benefits beyond what the employee is already owed under the original create your employment agreement, and the employee agrees to waive their right to sue the employer for claims arising from the employment relationship. This release of claims is the employer's primary motivation for offering severance. The agreement commonly includes additional provisions such as non-disparagement clauses, confidentiality requirements, non-compete or non-solicitation restrictions, cooperation obligations, and return of company property requirements.
Severance agreements involving employees age 40 and older are subject to specific requirements under the Age Discrimination in Employment Act (ADEA) and the Older Workers Benefit Protection Act (OWBPA). These federal laws mandate that the employee receive at least 21 days to consider the agreement (or 45 days in a group layoff), a 7-day revocation period after signing, written advice to consult an attorney, and clear disclosure of the rights being waived. Failure to comply with these requirements can render the release of age discrimination claims unenforceable.
Understanding a severance agreement before signing is critical because the document permanently extinguishes legal rights the employee may not fully appreciate. Once signed and past the revocation period, the employee generally cannot pursue claims covered by the release, even if they later discover they had a strong case. Employees should carefully evaluate whether the severance offer adequately compensates them for the rights they are surrendering, particularly if they have potential claims for discrimination, retaliation, unpaid wages, or other employment law violations.
| Feature | Standard Severance | Executive Severance | Group Layoff Severance |
|---|---|---|---|
| Typical Pay | 1-2 weeks per year of service | 6-24 months of base salary | Varies by employer policy |
| OWBPA Consideration Period | 21 days (if age 40+) | 21 days (if age 40+) | 45 days (if age 40+) |
| Benefits Continuation | COBRA subsidy for 1-3 months | Full benefits for 6-18 months | COBRA subsidy for 1-6 months |
| Non-Compete Restrictions | Rarely included | Commonly included with narrow scope | Sometimes included |
| Negotiability | Moderate | High, most terms are negotiable | Limited, standardized across group |
Why You Need a Severance Agreement
When an employer is terminating an employee and wants to prevent future lawsuits, a severance agreement with a valid release of claims provides enforceable legal protection against wrongful termination, discrimination, and other employment claims. Our contract drafting legal service ensures every release clause meets ADEA and OWBPA requirements.
When negotiating an executive departure, a severance agreement structures the financial terms of the separation - including severance pay, bonus payments, equity vesting, COBRA coverage, and release of any non-compete obligations - in a complete exit package.
When conducting a reduction in force or layoff, a severance agreement with proper ADEA/OWBPA compliance protects the employer from age discrimination claims while providing affected employees with financial support during their transition.
When an employee has potential legal claims against the employer, a severance agreement allows both parties to resolve disputes without litigation, providing the employee with guaranteed compensation in exchange for waiving uncertain legal outcomes.
Related Employment Documents
Severance Agreement is often used alongside other employment documents. Depending on your situation, you may also need:
Key Sections in a Severance Agreement
Severance Pay and Benefits
This section specifies the total severance compensation, including lump-sum or installment payments, the continuation of health insurance through COBRA subsidies, vesting of stock options or retirement benefits, and any outplacement services. The severance amount is typically calculated based on years of service, salary level, and the employee's negotiating power.
General Release of Claims
The release of claims is the core provision the employer seeks, waiving the employee's right to sue for claims including discrimination, wrongful termination, harassment, breach of contract, and wage violations. A valid general release must be knowing and voluntary, and certain claims such as workers' compensation, unemployment insurance, and vested ERISA benefits typically cannot be waived.
ADEA and OWBPA Compliance Provisions
For employees age 40 and older, the agreement must include specific disclosures required by federal law: a 21-day consideration period (45 days for group layoffs), a 7-day revocation period after signing, written advice to consult an attorney, and in group layoff situations, a disclosure of the job titles and ages of employees selected and not selected for the layoff.
Non-Disparagement and Confidentiality
Non-disparagement clauses restrict the employee from making negative statements about the employer, its management, products, or business practices. Confidentiality provisions prohibit disclosure of the severance terms, trade secrets, and proprietary information. Recent NLRB guidance has limited the enforceability of overly broad non-disparagement and confidentiality clauses in severance agreements.
<strong>Non-Compete</strong> and <strong>Non-Solicitation</strong> Restrictions
Some severance agreements include or reinforce post-employment restrictive covenants that limit the employee's ability to work for competitors or solicit the employer's clients and employees. These provisions must comply with applicable state law, which varies dramatically, with several states banning or severely restricting non-compete agreements.
Cooperation and Transition Obligations
Cooperation clauses require the departing employee to assist with transitioning their responsibilities, responding to inquiries about ongoing matters, and participating in any litigation or regulatory proceedings involving the employer. These obligations should be time-limited and the agreement should specify whether the employee will be compensated for cooperation beyond minimal time commitments.
Severance Agreement Legal Requirements
Under the Older Workers Benefit Protection Act, severance agreements with employees age 40 or older must provide a 21-day consideration period (45 days for group layoffs), a 7-day revocation period, written advice to consult an attorney, and specific disclosures about waived rights.
The release must be supported by adequate consideration, meaning the employee must receive something of value beyond what they are already owed, such as wages earned or accrued vacation. Payment of already-owed compensation does not constitute valid consideration.
Certain rights cannot be waived in a severance agreement, including the right to file charges with the EEOC, claims for workers' compensation benefits, unemployment insurance benefits, vested ERISA retirement benefits, and rights under the FLSA that have not yet accrued.
The NLRB has ruled that overly broad confidentiality and non-disparagement provisions in severance agreements may violate Section 7 of the National Labor Relations Act by restricting employees' protected concerted activity rights.
Severance agreements containing non-compete provisions must comply with applicable state laws, which vary widely and are rapidly evolving. The FTC has proposed a federal ban on non-competes, and numerous states have enacted restrictions based on salary thresholds, duration limits, or outright prohibitions.
Common Severance Agreement Mistakes to Avoid
Signing a severance agreement immediately without using the full consideration period to review the terms, consult an attorney, and assess whether the offer adequately compensates for waived legal claims. If you believe the terms are unfair, a cease and desist letter generator may be warranted before escalating.
Failing to negotiate the severance package when the employer often has room to increase the payment, extend benefits, modify restrictive covenants, or add favorable terms like a neutral reference provision.
Overlooking that non-compete and non-solicitation provisions survive termination and could significantly limit future employment opportunities for months or years after separation.
Not understanding which claims are being released, particularly if the employee has potential discrimination, retaliation, or wage claims that could be worth substantially more than the severance offered.
Accepting a severance agreement in a group layoff without verifying that the employer has provided the required OWBPA disclosures, which if missing, may render the age discrimination release invalid.
Frequently Asked Questions About Severance Agreements
What is a severance agreement?
What should a severance agreement include?
How much severance pay is normal?
Should I sign a severance agreement?
Can I negotiate my severance package?
What is a separation agreement vs severance agreement?
Do I have to sign a severance agreement?
How long do I have to review a severance agreement?
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