Severance Agreement Red Flags: What to Check First
Why Severance Agreements Need Careful Review
A severance agreement is not a gift. It is a negotiated exchange: you receive compensation in return for giving up valuable legal rights. Understanding what you are giving up is essential before signing.
Top Red Flags
Overly Broad Release of Claims
The release is the core of any severance agreement. Watch for language that releases all claims "known and unknown" against the employer and all related parties. While broad releases are standard, the scope should not extend to claims unrelated to your employment, such as personal injury claims or claims against third parties.
Non-Disparagement Without Mutual Obligation
If the agreement bars you from making negative statements about the company but imposes no similar restriction on the company or its executives, the obligation is one-sided. Consider whether mutual non-disparagement is appropriate.
Cooperation Clause Without Time or Cost Limits
Some severance agreements require indefinite cooperation with the company's legal matters, including testifying in lawsuits. Without time limits and reimbursement for your time and expenses, this open-ended obligation can become a significant burden.
Non-Compete or Non-Solicitation Attached to Severance
Some employers use severance as leverage to impose or extend restrictive covenants. If the severance includes a new non-compete or non-solicitation that was not in your original employment agreement, this limits your future employment options in exchange for the severance payment.
OWBPA Non-Compliance (Age 40+)
If you are 40 or older, the Older Workers Benefit Protection Act (OWBPA) requires specific disclosures, a 21-day consideration period (45 days for group layoffs), and a 7-day revocation period. An agreement that fails to meet these requirements may have an unenforceable release of age discrimination claims.
Confidentiality of the Agreement Itself
Some severance agreements prohibit you from disclosing the terms or even the existence of the agreement. Consider whether this restriction conflicts with your need to discuss the agreement with family, financial advisors, or future employers.
When to Consult a Lawyer
Consider consulting an employment attorney before signing any severance agreement. The consideration and revocation periods exist precisely to give you time to seek legal advice. An attorney can evaluate whether the severance offer is fair relative to what you are giving up.
This article is for informational purposes only and does not constitute legal advice. Consult a licensed attorney for guidance specific to your situation.