Severance Agreement Review: Protect Your Separation Package
When companies lay you off or you resign, they often offer severance ("2 weeks pay, 3 months healthcare"). But severance comes with a catch: you sign a release stating you won't sue the company for discrimination, wrongful termination, or wage theft. This guide explains severance agreements, what to negotiate, and when to get legal help.
What is a Severance Agreement?
A severance agreement (or separation agreement) is: (1) Severance package: cash (weeks/months of pay), healthcare continuation, outplacement help, (2) PLUS a release: you agree not to sue the company, (3) In exchange: you get severance. It's a trade: accept severance in exchange for waiving your legal rights. Example: company lays you off, offers "6 weeks severance + 3 months COBRA + outplacement," you sign a release saying "I won't sue for discrimination, wrongful termination, age discrimination, disability discrimination." This is standard. BUT the release is powerful: you're giving up your right to sue, even if company violated the law. This is why severance negotiation is critical.
What's Negotiable in Severance
Most companies will negotiate on: (1) Severance amount: ask for 2 weeks per year employed (1 year = 2 weeks, 5 years = 10 weeks), or base salary / 12 × months offered, (2) Healthcare: ask for 6 months COBRA continuation (not just 3), (3) Equity acceleration: ask to accelerate vesting on any unvested options/RSUs (especially if company is acquired), (4) Job search help: ask for outplacement, LinkedIn premium, resume help, (5) Reference: ask for positive reference (not "do not rehire"), (6) Release scope: negotiate what you're releasing (see below). Companies will negotiate amount/duration more easily than release scope. But RELEASE is what matters legally.
Critical: Negotiating the Release Language
The release is the important part, and it's less negotiable, but some terms can be clarified: (1) BROAD RELEASE: "Employee waives all claims against company" = you waive everything, (2) NARROW RELEASE: "Employee releases only claims related to employment termination" = you keep rights to sue for discrimination, fraud, etc. Some companies will negotiate narrower language. Ask for: (3) Carve-out for vested equity (you can still get vested shares/options even after signing release), (4) Carve-out for indemnification (company doesn't sue you either), (5) Carve-out for cooperation (you can testify if subpoenaed without violating release), (6) CRITICAL: Ask if waiving rights to sue for discrimination, wage theft, harassment, or fraud. If company wants you to waive discrimination rights, that's a red flag—get legal review immediately.
Frequently Asked Questions
What does a severance agreement release mean?
A release means you agree not to sue the company, in exchange for severance. Specifically, you're giving up: (1) Right to sue for wrongful termination, (2) Right to sue for discrimination (age, race, sex, disability, etc.), (3) Right to sue for wage theft or unpaid wages, (4) Right to sue for contract breach, (5) Right to sue for harassment or retaliation. After signing, you basically can't sue, even if company violated the law. This is why it's critical to negotiate the severance amount and release language.
Can I negotiate my severance amount?
Yes. Most companies will negotiate. Standard benchmarks: (1) 1 week per year employed (1 year = 1 week, 5 years = 5 weeks), (2) 2 weeks per year employed (if company is laying off many), (3) 1 month per year employed (if company is in financial trouble / acquired). Also negotiate: (1) Healthcare continuation (ask for 6 months COBRA, not 3), (2) Equity acceleration (vesting should accelerate for any unvested options/RSUs), (3) Outplacement help (job search services), (4) Reference (positive reference). Get these in writing.
Should I sign a severance agreement without a lawyer?
Only if: (1) You understand the release language (you're giving up right to sue), (2) You've negotiated amount/duration you're comfortable with, (3) The severance amount makes sense (reasonable for your tenure). If any of these are unclear, or if release language is very broad (waiving discrimination rights), get a lawyer to review. A severance attorney can often negotiate 20-30% more in severance and better release terms—cost (usually $300-1,000) is worth it.
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