Severance Agreements: What to Know Before You Sign

No federal law requires severance pay. The Fair Labor Standards Act contains no severance requirement, and the U.S. Department of Labor describes severance as a matter of agreement between an employer and an employee. In most states severance is purely a matter of contract or employer policy, which means any right you have comes from your offer letter, your employment agreement, or an employer severance plan, not from a statute.

A minority of states do mandate severance, and only in specified plant closing or mass layoff situations. Maine requires one week's pay per year of service on a covered closing (26 M.R.S. 625-B), and New Jersey requires one week per year of service for every affected employee in a covered mass layoff, even when the employer gives the full 90 days' notice (N.J.S.A. 34:21-2). The Supreme Court held in Fort Halifax Packing Co. v. Coyne, 482 U.S. 1 (1987), that a state law of this kind is not preempted by ERISA when it requires only a one-time payment rather than an ongoing plan. Most states have no such statute, so whether one helps you depends entirely on where the job was.

Whatever you are paid is taxed as wages. In United States v. Quality Stores, Inc., 572 U.S. 141 (2014), the Supreme Court held that severance payments are taxable wages for FICA purposes, so Social Security and Medicare payroll taxes come out of severance in addition to income tax withholding. Plan around the net figure, not the headline number.

The heart of a severance agreement is the release: the paragraph where you promise not to sue in exchange for the money. Everything else in the document is secondary to that trade. Federal law regulates the trade in only a few places, and the most detailed set of rules applies to workers 40 and older who are asked to give up age discrimination claims.

One limit is statutory. Under the Age Discrimination in Employment Act, a waiver cannot cover rights or claims arising after the date it is signed (29 U.S.C. 626(f)(1)(C)). There is no equivalent federal statutory bar for other claims. Courts as a general matter construe releases to reach only claims that exist at signing, so conduct after you separate, such as retaliation or a refusal to rehire, normally stays actionable. That construction question is governed by state contract law, though, so the outcome for non-ADEA claims can differ from state to state.

The other limit no employer can draft around is your access to the Equal Employment Opportunity Commission. Under 29 U.S.C. 626(f)(4) and 29 C.F.R. 1625.23, a severance agreement cannot stop you from filing a charge with the EEOC or from testifying, assisting, or participating in an EEOC investigation or proceeding, and no waiver affects the EEOC's own enforcement authority. A release can waive your right to recover money for yourself on the claims it covers. It cannot waive your right to file.

The Older Workers Benefit Protection Act sets content requirements for any written agreement that waives federal age discrimination claims. Under 29 U.S.C. 626(f)(1)(A) through (E), the agreement must be understandable to the average eligible employee, must specifically refer to ADEA rights or claims, cannot waive claims arising after you sign, must give you consideration beyond what you are already entitled to, and must advise you in writing to consult an attorney before signing.

It also sets clocks. You must get at least 21 days to consider the agreement, or at least 45 days if the waiver is requested in connection with an exit incentive or other employment termination program offered to a group or class of employees (29 U.S.C. 626(f)(1)(F)). The consideration period runs from the date of the employer's final offer, and a material change to that offer restarts it. Non-material changes do not restart it, unless the parties agreed otherwise (29 C.F.R. 1625.22(e)(4)).

After signing, you have at least 7 days to revoke, and the agreement cannot become effective or enforceable until that period expires (29 U.S.C. 626(f)(1)(G)). The 7 days cannot be shortened or waived by either party for any reason. You may choose to sign before the 21 or 45 days run out, which starts the mandatory 7-day revocation clock, as long as the decision is knowing and voluntary and was not induced by fraud, misrepresentation, a threat to withdraw or alter the offer, or by offering different terms to people who sign early (29 C.F.R. 1625.22(e)(5) and (6)).

If the validity of an age waiver is later disputed, the party asserting that it is valid, normally the employer, bears the burden of proving in court that the waiver was knowing and voluntary (29 U.S.C. 626(f)(3)). And if the release does not comply with OWBPA, you do not have to hand the money back before suing. Oubre v. Entergy Operations, Inc., 522 U.S. 422 (1998), holds that keeping the severance does not ratify a defective ADEA waiver, and 29 C.F.R. 1625.23 bars clauses that force tender-back or that impose fees or damages for filing an ADEA suit. That protection is specific to the ADEA: for other claims some courts still apply common-law tender-back or ratification doctrines, the answer varies by circuit, and it is genuinely unsettled.

These rules apply only where the federal ADEA applies, which is to workers at least 40 years old at employers with 20 or more employees in each working day of 20 or more calendar weeks (29 U.S.C. 630(b), 631(a)). Federal law imposes no waiting period and no revocation period on releases of Title VII, ADA, or Equal Pay Act claims; those are judged under case-law standards asking whether the waiver was knowing and voluntary. State law differs in both directions. State fair employment statutes often cover much smaller employers, and some states add their own review or rescission periods: Minnesota gives 15 calendar days to rescind a release of state Human Rights Act claims and requires written notice of that right (Minn. Stat. 363A.31, subd. 2), and California requires the employer to advise you of the right to consult an attorney and to give at least five business days to do it (Cal. Gov't Code 12964.5). Most states impose no such requirement, and state legislatures revise these provisions frequently, so check the current law where you worked.

In a group exit incentive or termination program, the employer owes you a written disclosure at the start of the 45-day period. Ages must be listed individually: age bands broader than one year, such as "20-30," do not satisfy the rule (29 C.F.R. 1625.22(f)(4)(ii)). Under 29 U.S.C. 626(f)(1)(H) and 29 C.F.R. 1625.22(f), the disclosure must state:

Severance agreements and internet checklists often carry a list of rights you supposedly cannot waive. Most of that list is state law, not federal, and parts of it are simply wrong. Only a narrow core is uniform nationwide.

Two pieces are federal and firm. Vested retirement benefits under an ERISA pension plan are protected by the federal anti-alienation rule and cannot be assigned or alienated by a severance agreement (29 U.S.C. 1056(d)(1)). And your right to file with, or participate in a proceeding before, the EEOC survives any release, as described above.

Wage claims are more complicated than they look. Your right to the minimum wage and overtime under the FLSA cannot be bargained away prospectively (Barrentine v. Arkansas-Best Freight System, Inc., 450 U.S. 728, 740 (1981), citing Brooklyn Savings Bank v. O'Neil, 324 U.S. 697, 707 (1945)), and the EEOC's severance checklist tells workers not to release FLSA claims. Whether a signed general release wipes out wage claims that have already accrued is an open question that turns on your circuit: many courts follow Lynn's Food Stores, Inc. v. United States, 679 F.2d 1350 (11th Cir. 1982) and require Department of Labor or court approval, the Second Circuit requires court or DOL approval (Cheeks v. Freeport Pancake House, 796 F.3d 199 (2d Cir. 2015)), the Fifth Circuit enforces private releases of bona fide disputed FLSA claims (Martin v. Spring Break '83 Productions, L.L.C., 688 F.3d 247 (5th Cir. 2012)), and district courts within the Sixth Circuit are split, with a 2024 district court decision there, Gilstrap v. Sushinati LLC, holding that judicial approval is neither required nor permitted. There is no national answer, so the rule that governs you depends on the circuit where suit would be filed. Separate state wage claims run on state non-waiver rules. Do not assume a general release leaves an unpaid wage claim untouched.

The rest of the usual list varies, and in several places it varies against you. Keep in mind as you read it that the EEOC's severance checklist is practical guidance, not a legal bar, but that two items on it carry independent legal force: vested ERISA pension benefits cannot be assigned or alienated no matter what the agreement says (29 U.S.C. 1056(d)(1)), and most states' unemployment codes void an agreement to waive benefit rights. For workers' compensation and COBRA the checklist is advice only: if your agreement purports to release one of those, the fact that the EEOC advises against it does not by itself make the clause void. Here is where the usual list stands:

In McLaren Macomb, 372 NLRB No. 58 (Feb. 21, 2023), the National Labor Relations Board held that merely offering an NLRA-covered, non-supervisory employee a severance agreement containing overly broad confidentiality and non-disparagement provisions can violate Section 8(a)(1) of the National Labor Relations Act. The employee does not have to sign it for the violation to occur. That decision remains extant Board precedent: the General Counsel memo interpreting it was rescinded on February 14, 2025 by GC 25-05, but rescinding a General Counsel memo does not change Board law, and on April 7, 2026 the Board applied McLaren Macomb in Prime Communications, LP, 374 NLRB No. 88.

Treat that as a moving target rather than a settled rule. In Prime Communications, Chairman Murphy and Member Mayer wrote that they apply McLaren Macomb as extant precedent but would be open to reconsidering it in a future appropriate proceeding. Board composition has been unstable as well: the Board lost its quorum in January 2025, regained one on January 7, 2026, and Member Prouty's term expires in August 2026, which could cost it a quorum again. Confirm where Board law stands before relying on it.

Coverage is narrower than the headlines suggest. McLaren Macomb protects only "employees" covered by Section 7 of the NLRA, and the Act's definitions exclude supervisors, agricultural laborers, domestic-service workers, independent contractors, and individuals employed by a parent or spouse. The definition of "employer" excludes the United States and the states and their political subdivisions, and also excludes carriers subject to the Railway Labor Act, so railroad and airline employees and most public-sector workers are outside it too (29 U.S.C. 152(2), (3), (11)). Being outside the NLRA does not always mean having no protection. Many states give public employees, and in some states farmworkers and domestic workers, parallel statutory rights to engage in concerted activity for mutual aid and protection, so check your state's public-employee or agricultural labor relations act. The doctrine also does not automatically invalidate every confidentiality or non-disparagement clause, and narrowly tailored clauses can survive.

For harassment and assault cases, the Speak Out Act makes nondisclosure and nondisparagement clauses judicially unenforceable in sexual assault and sexual harassment disputes, but only where the clause was agreed to before the dispute arose, and it does not stop an employer from protecting trade secrets or proprietary information (42 U.S.C. 19403(a), (b), (d)). Federal law alone therefore does not void an NDA you sign in a severance or settlement agreement after the dispute already exists. The Act expressly leaves more protective state law in place, and some states do reach post-dispute NDAs, including Washington (RCW 49.44.211), New Jersey (N.J.S.A. 10:5-12.8, extended to non-disparagement clauses by Savage v. Township of Neptune (N.J. 2024)), and California (Cal. Gov't Code 12964.5). Many states do not, so the answer depends on where you worked.

Related point on arbitration: under the Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act, a person alleging sexual assault or sexual harassment may elect to void a predispute arbitration agreement or predispute joint-action waiver as to that case, and a court rather than an arbitrator decides whether the Act applies (9 U.S.C. 401 to 402). It reaches only disputes or claims that arise or accrue on or after March 3, 2022.

No confidentiality clause can strip the federal trade-secret whistleblower immunity. Under 18 U.S.C. 1833(b), you cannot be held criminally or civilly liable under federal or state trade-secret law for disclosing a trade secret in confidence to a government official or an attorney solely to report or investigate a suspected violation of law, or in a document filed under seal. An employer must include notice of that immunity in any contract or agreement with an employee that governs the use of a trade secret or other confidential information, and "employee" there includes contractors and consultants; the requirement applies to contracts entered into or updated after May 11, 2016. An employer that omits the notice may not be awarded exemplary damages or attorney fees under 18 U.S.C. 1836(b)(3)(C) or (D) against an employee who never received it.

If the paperwork also contains a non-compete, there is no federal rule to fall back on. The FTC's Non-Compete Clause Rule never took effect and no longer exists: a federal district court held the agency exceeded its statutory authority and that the rule was arbitrary and capricious (Ryan, LLC v. FTC, 746 F. Supp. 3d 369 (N.D. Tex. 2024)), the FTC voted 3-1 on September 5, 2025 to dismiss its appeals and accede to vacatur, and effective February 12, 2026 the FTC removed 16 C.F.R. part 910 from the Code of Federal Regulations (91 FR 6507). Enforceability is governed entirely by state law and varies enormously: California, Minnesota, North Dakota, and Oklahoma void employee non-competes almost entirely, most states apply reasonableness review to scope, duration, and geography, and a growing number bar them below an income threshold. These statutes change every legislative session, so confirm the current rule in the state where you worked rather than relying on a roster like this one.

Whether severance reduces, delays, or has no effect at all on unemployment benefits is decided entirely by state law, and there is no federal rule filling the gap. The range runs from complete disregard of the payment to a week-for-week disqualification, so what you read about one state tells you nothing reliable about your own.

You generally cannot sign unemployment rights away. Most states' unemployment codes void an agreement to waive benefit rights, so a severance clause promising you will not apply is usually unenforceable. That is state statutory law rather than a federal guarantee, and it has to be confirmed in your state.

Because the way a lump sum is characterized and allocated can control when benefits start, ask your employer how the payment will be designated before you sign. Then file your claim, report the severance, and let the state agency issue a written determination rather than deciding for yourself that you are ineligible. Four states show how far apart the answers sit, and none of them stands in for the other 46, so look up the rule for the state where you worked, including any state that deducts separation pay from the weekly benefit amount:

Severance agreements are negotiable, and the first draft is rarely the final word. The amount, the payment structure, a neutral reference or job verification, help with COBRA premiums, outplacement services, and making a non-disparagement clause mutual are all things workers ask for. Nothing requires your employer to agree, and nothing stops you from asking.

Before you sign anything, work through this list: