Best Practices for Employment Severance Agreements

Severance agreements can be a smart risk-management tool, but only if they are drafted and used carefully. A sloppy agreement can create exactly the kind of legal problem it was supposed to prevent. Not ideal. Very “task failed successfully.”

A well-designed severance agreement should do three things:

1. provide clear consideration to the employee,
2. obtain an enforceable release of claims where permitted, and
3. avoid language that unlawfully restricts employee rights.

What is a severance agreement?

A severance agreement is a contract in which an employer offers something of value, usually severance pay or benefits, in exchange for certain promises by the departing employee. Those promises often include a release of claims, confidentiality obligations, cooperation language, return of company property, and other exit terms.

The key point is this: a severance agreement is not automatically enforceable just because it is signed. For many waivers, especially those involving discrimination claims or employees age 40 and over, federal law imposes very specific requirements.

Start with the basics: give real consideration

One of the most important compliance rules is that the employee must receive something of value that they are not already entitled to receive. In other words, severance pay cannot simply be wages already owed, accrued but required payouts, or benefits the employee would receive anyway. The extra payment or benefit is what supports the release.

Best practice: clearly identify the severance consideration in the agreement. Spell out the amount, timing, and any conditions for payment.

Make sure the release is knowing and voluntary

For a waiver of employment claims to hold up, it generally must be knowing and voluntary. That means the agreement should be written in plain English, tailored to the situation, and free of confusing or overly legalistic wording. Employees should have a fair opportunity to review it before signing.

Best practices include:

• use clear, readable language
• identify the claims being released with reasonable specificity
• avoid burying critical terms in dense paragraphs
• encourage the employee to consult an attorney
• avoid pressure tactics or rushed deadlines unless the law allows them

Do not try to waive future claims

A severance agreement may generally release claims based on events that happened before the employee signs. It should not attempt to waive claims that arise in the future. For example, an employee cannot validly waive the right to sue over unlawful conduct that happens after the agreement is executed.

Best practice: state clearly that the release applies only to claims arising on or before the date the employee signs.

Be extra careful with employees age 40 and over

If the employee is age 40 or older and the agreement includes a waiver of age discrimination claims under the ADEA, the Older Workers Benefit Protection Act (OWBPA) applies. This is an area where technical compliance matters a lot.

To be valid, the waiver must meet specific requirements, including that it be written in a manner calculated to be understood, specifically refer to ADEA rights, advise the employee in writing to consult an attorney, provide at least 21 days to consider the agreement in an individual termination, and provide 7 days to revoke after signing. In group termination or exit incentive situations, the rules are stricter: employees generally must get 45 days to consider plus additional disclosures about the decisional unit, eligibility factors, time limits, and the ages/job titles of individuals selected and not selected.

Best practice: never use a one-size-fits-all template for employees 40 and over, especially in a layoff or reduction in force.

Preserve the employee’s right to file charges and cooperate with agencies

This is where many agreements go sideways. Even if an employee releases personal claims for money damages, employers generally cannot prohibit that employee from filing a charge with the EEOC, participating in an investigation, or cooperating with government agencies. EEOC guidance is clear on that point.

Best practice: include a carve-out stating that nothing in the agreement prevents the employee from:

• filing a charge with the EEOC, NLRB, SEC, or other government agency
• participating in an investigation or proceeding
• providing truthful information to a government agency

You can still address the employee’s waiver of personal recovery where lawful, but the agency-participation rights need to be protected.

Watch confidentiality and non-disparagement language

Broad confidentiality and non-disparagement clauses have received significant scrutiny. In McLaren Macomb, the National Labor Relations Board held that employers may violate the NLRA by offering severance agreements to non-supervisory employees if the agreements broadly restrict them from discussing terms and conditions of employment or from making statements that could chill protected concerted activity. The NLRB’s General Counsel later issued guidance identifying problematic clauses, including overbroad confidentiality, non-disparagement, non-disclosure, and similar restrictions.

That means employers, especially unionized employers and private-sector employers covered by the NLRA, should not assume that traditional boilerplate is safe.

Best practices:

• narrowly tailor confidentiality clauses
• avoid language that could prevent employees from discussing workplace conditions
• avoid broad non-disparagement language that could chill protected activity
• review agreements used for non-supervisory employees under the NLRA lens

Do not interfere with whistleblower rights

For employers subject to securities laws or other whistleblower regimes, severance language must not impede an employee from reporting possible violations to regulators. The SEC has repeatedly enforced Rule 21F-17 against companies whose agreements discouraged reporting, required advance notice to the company, or waived monetary whistleblower awards. The SEC reiterated this in 2024 enforcement actions and public guidance.

Best practice: include express whistleblower carve-outs and avoid any term requiring notice to the company before contacting a regulator.

Be careful with repayment, cooperation, and penalty clauses

Employers sometimes add aggressive remedies if the employee breaches confidentiality, non-disparagement, or cooperation obligations. But liquidated damages, fee-shifting, forfeiture provisions, or clawbacks that are too broad can raise enforceability concerns and may amplify risk under the NLRA or whistleblower laws. The safer approach is narrow drafting tied to legitimate business interests.

Best practice: if you include remedies, make sure they are proportionate, legally supportable, and reviewed for state-law enforceability.

Coordinate with state law

Federal law is only part of the story. State law may affect releases, wage payment timing, confidentiality limits, non-disparagement provisions, no-rehire clauses, and separation-related notice requirements. Some states also regulate what can be included in agreements related to harassment, discrimination, or retaliation claims.

Best practice: have severance templates reviewed for the states where employees work, not just the state where the company is headquartered.

Use a consistent process, not just a good template

A compliant severance program depends on administration as much as drafting. A legally sound document can still create risk if managers pressure employees, make side promises, alter deadlines casually, or use the wrong version for a group termination.

Good process controls include:

• using approved templates only
• routing agreements through HR or legal review
• identifying when OWBPA rules apply
• flagging RIF/group termination situations
• training HR and managers not to ad-lib agreement terms
• documenting delivery dates, consideration periods, revocation periods, and payment timing

A practical severance agreement checklist

Before using a severance agreement, confirm that it:

• provides consideration beyond what is already owed
• clearly identifies the payment and timing
• uses plain, understandable language
• releases only past claims, not future claims
• includes attorney-consult language where required
• satisfies OWBPA rules for employees age 40+
• preserves agency filing and cooperation rights
• avoids overbroad confidentiality and non-disparagement restrictions
• includes whistleblower-safe carve-outs
• has been reviewed for applicable state-law issues
• is administered through a consistent review process

Final takeaway

A severance agreement can absolutely be part of a smart offboarding strategy, but it should never be treated like plug-and-play paperwork. The highest-risk mistakes usually come from overreaching language, outdated templates, and failure to account for special rules like OWBPA, NLRA protections, and whistleblower carve-outs.

The safest approach is simple: keep the agreement clear, fair, narrowly tailored, and current.