Severance Agreement Generator
Generate a professional severance agreement customized for your state. AI-powered with optional attorney review, covering all 50 U.S. jurisdictions.
Severance Agreement Generator
AI-powered · Attorney review option · All 50 states
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Severance agreements are valid with electronic signatures. Ensure ADEA/OWBPA compliance for employees over 40.
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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 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.
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.
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 comprehensive 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 leverage.
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.
Non-Compete and Non-Solicitation 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.
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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Reviewed by licensed attorneys · Editorial policy · Last updated March 2026
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