What Should Be Included in Your Severance Agreement?

May 31, 2023
The Law Firm of J.W. Stafford

Whether you are being let go due to a layoff or your termination is for more adversarial reasons, a severance agreement can help smooth the transition to your next opportunity. Unfortunately, many people may be already overwhelmed at the time the agreement is presented to them and rarely understand what they are looking at. Add in some pressure from your former employer to sign it, and you could easily be signing a severance agreement that lacks key elements. If you have been given a severance agreement and are not sure what to do, an employment contract attorney can make sure it has what you need. 

The Components of a Typical Severance Agreement

To start, it is important to recognize that what may be considered “typical” can vary by jurisdiction, industry, and job type. In other words, what may be considered typical for purposes of this discussion may not apply to your specific situation. 

Secondly, severance agreements are contracts, which means they are negotiable, but it also means that employers will use form contracts in order to save time and money. Most people will simply sign the agreement in order to receive their check, and as a result, employers may tender a severance agreement without realizing that it does not contain one or more important provisions.  

All of that said, your severance agreement should contain provisions that address the following: 

  1. Timeline. Your severance agreement should specify the last day of your employment (if your termination is not effective immediately) and how long you have to sign the severance agreement. 
  2. Pay. The severance agreement should detail what date you will be paid through and when you will receive your wages. It should also discuss what amount and when you will receive any severance pay that is in addition to your regular wages. 
  3. PTO. The agreement should also note whether you must use your PTO before you leave (if your termination is not already effective) or whether you will be compensated for any unused PTO. Ideally, the agreement should indicate how much PTO you have and how you will be compensated for it (if applicable) in order to avoid any future disputes. 
  4. Health insurance. Your agreement should note what options you should have for health insurance coverage, i.e., whether your employer will continue to pay for your coverage for some period of time or whether COBRA is your only option.  
  5. Return of company property. The agreement should specify what property your employer expects to be returned upon your leaving. The provision should state that they do not expect you to return any property if there is none rather than be silent on this point. This prevents you from being accused of theft. 
  6. Venue and choice of law. The agreement should state what law will apply to any disputes arising from the agreement and where litigation will be filed.
  7. A “merger” clause. This is a provision that states that the written agreement is the total agreement and replaces any verbal or prior agreements.  

Severance agreements can be loaded with legalese and therefore difficult for non-lawyers to understand. A knowledgeable employment contract attorney can review your severance agreement and determine whether it has the necessary provisions. 

Provisions You May Want to Consider and Potential Red Flags

Beyond these basic provisions, you may want to consider whether the following provisions should be included: 

  • A provision that releases both parties from any liability to the other
  • A provision that prohibits both parties from disparaging one another
  • A provision that explains why you are being terminated and what information will be disclosed to potential employers

Note that the first two options should be mutual. If you have a one-sided release of liability or non-disparagement clause, we would recommend against signing that agreement. Other potential red flags that you should watch out for: 

Non-solicitation and non-compete clauses are often overly restrictive and highly problematic. If your severance agreement contains either of these provisions, you should seek guidance from an employment contract attorney to better understand your rights. 

Speak with an Employment Contract Attorney at The Law Firm of J.W. Stafford

As noted above, a severance agreement is just a contract. J.W. Stafford can review your contract, explain its implications for you, and negotiate one that protects your rights and your reputation. To discuss your severance and how we can help, call us today at 410-709-7338 or contact us online to schedule a consultation.