According to Yahoo Finance, more than 1.2 million Americans were laid off in 2025. This figure indicates a 58% increase in the number of people who lost their jobs compared to 2024. This statistic is the highest rate since 2020. Millions of workers are separated from their jobs every year on grounds of layoff, resignation, or termination.
A severance agreement describes the terms of separation between an employer and an employee at the end of their employment. Compensation, benefits continuation, a non-disclosure agreement, and a waiver of any legal claims form the components of this agreement.
Companies that offer severance may provide them voluntarily. Some companies may be compelled to provide severance packages in the event of a reduction in force, reorganization, or voluntary resignations.
According to a severance agreement lawyer, a severance agreement could be deemed void if the employee finds out in the future that they signed and executed it under the pretext of something false. If you think that such is your case, talk to your lawyer.
Let’s learn the seven important points that apply to a severance agreement. Keep in mind that signing one could influence one’s workplace rights, future employment opportunities, and any legal claims against the employer.
Severance Pay Is Often Governed by Policy or Negotiation
No federal law requires companies to pay severance, which means that businesses decide their severance payments based on their internal policies. The development of severance policies is guided through existing employment contracts or through negotiations with employees.
The initial calculation method provides one to two weeks of pay for each year of service but different industries and roles and company sizes affect this base figure. Employees have the right to request changes to their severance package, but the employer will decide whether to enter negotiations based on specific situations and company rules.
Employment law can be very complex, but the right employment attorney can assist you in determining the best available solutions to the current legal issues you face with your employer, according to LA employment lawyer Emanuel Shirazi.
The Release of Claims Is the Agreement’s Core Exchange
Most severance agreements include a waiver whereby the employee concedes any claims to get paid by the company. This arrangement prevents the employee from seeking damages through the civil action system for issues covered under the agreement. The waiver extends to all types of employment-related lawsuits, which include discrimination claims and wage disputes and wrongful termination claims, among other legal matters.
Employees need to know exactly which claims they will release through the signing process. Keep in mind that the release serves as the payment method for the employer.
Employees Over 40 Have Specific Legal Protections
The Older Workers Benefit Protection Act, which amends the Age Discrimination in Employment Act of 1967, requires employers to provide their workers who reach 40 years of age with a minimum period of 21 days to examine any severance agreement that includes an age discrimination waiver.
The duration of the period for group layoffs, which involve multiple employees, extends to 45 days. Federal law establishes a mandatory 7-day revocation period, which begins after signing for all valid age-discrimination claim waivers. The employee has the right to sign before the 21- or 45-day consideration period ends if they make a voluntary and informed decision.
Non-Compete and Non-Solicitation Clauses Can Limit Future Employment
The majority of severance agreements contain restrictions that remain active after employees end their employment. A non-compete clause restricts employees from working with competitor companies during a specified time and in particular geographic locations.
A non-solicitation clause prohibits employees from recruiting their former coworkers and contacting their previous clients. The enforceability of employment non-compete agreements operates differently across various states. For example, California invalidates most agreements, whereas other states permit them. These differences force employees to review their complete contracts before they can proceed with signing.
Benefits Continuation Terms Vary
Severance agreements require employers to establish rules for continuing health insurance based on their particular business requirements.
The severance agreement may provide that the employer has to pay the health benefits for a certain period of time. In certain other severance plans, staff might be allowed to invoke the law called the Consolidated Omnibus Budget Reconciliation Act of 1985. When in effect, COBRA allows the employer to retrieve the total amount paid by the employer plus 2% to be kept for administrative reasons.
Employees must determine the period in which the employer benefits coverage stops so they can plan for the option of continuing their coverage.
Confidentiality and Non-Disparagement Clauses Require Careful Review
The basic components of severance agreements include a non-disparagement and confidentiality clause. The application of these elements relies on the contract terms, the operative facts constituted by an employee’s duties, and operative legal norms. Confidentiality binds the parties implicitly not to disclose the terms and conditions of the agreement. Meanwhile, the non-disparagement clause binds the parties not to make detrimental and critical remarks about the employer.
It is said that the companies that have very broad confidentiality and non-disparagement clauses in their severance agreements violate the National Labor Relations Act. These types of agreements also violate the rights of each covered employee.
Legal Review Before Signing Is Advisable
Severance agreements establish binding legal contracts between parties. Employment attorneys should evaluate contract terms because they permit employers to waive important employee rights, which employees need to protect before signing the contract.
Federal law does not mandate severance pay but companies establish their policies through internal procedures or settlement discussions. The release of claims is the central exchange in any severance agreement.
Federal law mandates that employees who are 40 years old or older must receive minimum periods for review and revocation. States enforce non-compete and non-solicitation clauses through different standards of legal validation.
The law does not recognize confidentiality and non-disparagement provisions as valid when they contain excessively broad restrictions. Employees should obtain legal advice before they sign a severance agreement.