A severance agreement is a contract in which the employer pays money — often a few weeks or a few months of pay — in exchange for a general release of all claims the worker might otherwise bring. The offer is presented as generous. The value of what is being given up is often much greater than the amount being paid.
Workers regularly sign these documents in the room where they are terminated, sometimes within an hour of being told they are losing their jobs. Almost every time, that is a mistake. There is nearly always time to read the agreement, evaluate the claims being released, and negotiate the terms. Federal and state laws sometimes require it.
What a severance agreement actually does
Two things happen in the typical severance agreement.
First, the employer promises money and sometimes continued benefits (extended health coverage, a lump-sum payment, accelerated vesting of equity, continued access to bonuses). Second, the worker releases the employer, its officers, employees, affiliates, and often “any and all persons” from every conceivable legal claim — known and unknown, present and future, arising out of employment or termination. The release language is usually broad enough to give up discrimination, harassment, retaliation, wage, whistleblower, contract, tort, and defamation claims in a single sentence.
For most workers, the release is the point of the document from the employer’s perspective. The money is the price the employer is willing to pay for closure.
What the law will not let the employer take
Certain rights cannot be waived, even by clear language in a signed agreement.
Sexual harassment and sexual assault confidentiality. Under the federal Speak Out Act, 42 U.S.C. § 19401 et seq., enacted in 2022, pre-dispute nondisclosure and non-disparagement clauses covering sexual assault and sexual harassment claims are unenforceable. New York’s General Obligations Law § 5-336, amended in 2018, 2019, and 2023, prohibits any provision that restricts a worker’s ability to disclose factual information about discrimination, harassment, or retaliation unless the worker prefers confidentiality and the agreement includes specific language, revocation rights, and consideration periods. New Jersey’s N.J.S.A. 10:5-12.8, passed after the #MeToo amendments in 2019, similarly restricts nondisclosure provisions in employment contracts and settlements covering discrimination, retaliation, or harassment claims.
Age discrimination claims are subject to the federal Older Workers Benefit Protection Act, 29 U.S.C. § 626(f). To be enforceable against an ADEA claim, a release must be written clearly, specifically reference the ADEA, provide 21 days to consider (45 days if the termination is part of a group reduction, with additional required disclosures), and provide 7 days after signing to revoke.
Filing an EEOC or state agency charge. Workers cannot be prevented from filing an administrative charge with the EEOC, the New York State Division of Human Rights, the New York City Commission on Human Rights, or the New Jersey Division on Civil Rights, even if the release language purports to bar it. A settlement may waive the right to monetary recovery from a subsequent charge, but the right to file is protected.
Wages already earned. Federal and state wage laws do not permit an employer to condition payment of already-earned wages on signing a release. Any severance clause that ties past wages to a release is often unenforceable and sometimes independently unlawful.
Whistleblower cooperation with the SEC and other regulators is protected against restriction by SEC Rule 21F-17 and comparable provisions.
Five red flags to check for
1. A release that is too broad — or that you have not read carefully. Read every category of claim the release covers. Note anything that includes “known or unknown,” “past, present, or future,” or references to specific statutes. If the release covers claims you did not know you had, ask a lawyer whether they exist and what they are worth.
2. Nondisclosure or non-disparagement clauses that reach beyond what the law permits. Blanket bans on discussing the workplace, the reasons for the termination, or the harasser are often unenforceable under the Speak Out Act, NY Gen. Oblig. Law § 5-336, or NJLAD. Employers still routinely present overreaching versions, and workers who sign without reading may feel bound in ways the law would not enforce.
3. Non-compete or non-solicit provisions. New York has narrowed the enforceability of non-competes in recent years, and courts scrutinize their reasonableness in geographic scope, duration, and legitimate business interest. New Jersey courts apply a similar reasonableness analysis. Non-solicits of employees and clients are more commonly enforceable but should be evaluated against your actual role and the industry. Signing a broad non-compete for a modest severance is often a bad trade.
4. Return-of-property clauses that are vague or overbroad. Standard clauses require return of company laptops, phones, and confidential materials. Broader clauses purporting to require return of your own contacts, drafts, or work product may exceed what the law permits and may interfere with your ability to work in the same industry. Read what you are agreeing to hand back.
5. Cooperation clauses. Language requiring the worker to be “available” to the company for future litigation, investigations, or business needs, sometimes indefinitely and often without compensation, can create obligations that outlast the payment. Reasonable cooperation on transition matters is often appropriate; open-ended availability is not.
Related items worth reading closely: clawback provisions (return of severance or bonuses if you breach any term), choice-of-law and choice-of-forum shifts (moving disputes to a jurisdiction less favorable to workers), mandatory arbitration references, and integration clauses (which override anything the employer promised orally).
Negotiation leverage — usually more than workers think
Employers who present severance agreements often have already priced the risk. The starting number is rarely the ceiling. Factors that increase negotiation leverage:
- The strength of any underlying legal claim. A termination that followed a harassment complaint, an accommodation request, a pregnancy announcement, or a whistleblower disclosure sits differently than a routine reduction.
- The worker’s tenure, seniority, and market value.
- The presence of unvested equity, deferred compensation, or performance-based bonuses.
- The value to the employer of a clean, no-litigation exit.
- Specific mistakes the employer may have made (procedural violations of FMLA, PFL, or WARN; deficient OWBPA disclosures for older workers).
An experienced employment lawyer will identify the leverage and use it. In many cases, the resulting settlement is materially larger than the initial offer — sometimes by a multiple of two or three or more — and often includes better terms on nondisclosure, non-compete, and cooperation clauses.
Timeline
Do not sign at the meeting. Almost every severance offer gives at least some time to consider. The OWBPA requires 21 or 45 days for age discrimination waivers. New York’s Gen. Oblig. Law § 5-336 requires 21 days plus a 7-day revocation period for waivers of discrimination or harassment claims. Even where a shorter deadline is stated, employers routinely extend on request.
Get a copy of the agreement, unsigned, before you leave the meeting. Do not accept a “here, sign, then I’ll give you a copy” arrangement.
Talk to a lawyer promptly. Most employment lawyers offer free, confidential severance-review consultations. A one-hour call often produces revisions that pay for themselves several times over.
What the employer’s promise is worth
The money in a severance agreement is real. So is what you are giving up. A worker with a strong retaliation, harassment, or discrimination claim who signs a boilerplate release for one month of severance may be walking away from a six- or seven-figure claim. A worker with no viable claim may be leaving negotiating room on the table but at least should know that is the choice.
If you have been offered a severance agreement in New York or New Jersey, contact Fingerhut Law for a confidential review before you sign.
Attorney Advertising Disclaimer: This article is attorney advertising and is provided for general informational purposes only. It does not create an attorney-client relationship and is not legal advice. Prior results do not guarantee a similar outcome.