Do I have to sign a severance agreement?

No. Severance agreements are voluntary. Your employer is offering money in exchange for a legal waiver — you can decline. If you decline, you don't receive the payment (unless your employment contract guarantees severance), but you retain all legal rights including the right to sue. The decision should be based on whether the offered amount is fair compensation for the claims you're releasing.

How long do I have to decide whether to sign?

If you're 40 or older, federal law gives you at least 21 days (45 days in a group layoff) and 7 days to revoke after signing. If you're under 40, there's no federally mandated period, but a few days to a week is typical. You can always ask for additional review time — a reasonable employer should accommodate a request for 5–7 business days.

What claims am I giving up when I sign?

Typically all claims from your employment — discrimination, wrongful termination, retaliation, breach of contract, and wage violations through the signing date. Before signing, consider whether you experienced any discrimination, harassment, or wage violations, because you're permanently waiving those claims.

Is severance pay taxable?

Yes. Severance is treated as ordinary income and is subject to federal and state income tax, Social Security, and Medicare taxes. Employers are required to withhold taxes. If you're also receiving payments attributed to physical injury or attorney's fees from an embedded legal settlement, different tax treatment may apply.

Can I collect unemployment if I sign a severance agreement?

In most states, yes — severance generally doesn't disqualify you from unemployment benefits, though some states treat certain severance as wages that delay eligibility. A severance agreement cannot require you to waive unemployment rights, which are established by state law and are non-waivable.

Understand My Severance Agreement — What You're Signing Away and Getting

A severance agreement arrives at the worst possible time — you've just lost your job, you're stressed, and someone is handing you a document with a signing deadline. But what looks like a straightforward offer of money in exchange for a signature is actually a legally binding contract that can permanently waive your right to sue your former employer for discrimination, wrongful termination, or other legal violations. Before you sign, you need to understand exactly what claims you're releasing, what restrictions you're accepting, and whether the offer is fair. PlainDoc's free severance agreement explainer breaks it all down in plain English.

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What a Severance Agreement Actually Is

A severance agreement is a contract in which you waive legal claims against your employer in exchange for compensation above what you're legally owed. The key phrase is "above what you're legally owed" — most employers have no legal obligation to offer severance unless your employment contract or company policy says otherwise. When they do offer it, they're paying you to sign away rights. The core of any severance agreement is the release of claims — a broad legal waiver in which you give up the right to sue for anything arising out of your employment or termination. This is the most consequential part of the document, and it's rarely the first thing you see.

The Release of Claims: What You're Giving Up

By signing the release, you typically waive all claims related to your employment — including potential discrimination claims (age, race, gender, disability, national origin), wrongful termination claims, breach of contract claims, wage and hour violations, retaliation claims, and claims under Title VII, the ADA, and the FMLA. The language is typically sweeping: "known and unknown claims arising from the beginning of time to the date of this agreement." This means you're waiving claims you may not even know you have. Take the release seriously — consider whether any wrongful conduct occurred before signing it away permanently.

ADEA Rights: Special Protections for Workers Over 40

If you are 40 or older, the Older Workers Benefit Protection Act (OWBPA) gives you specific rights that cannot be waived without compliance with strict requirements. You must be given at least 21 days to consider the agreement (45 days in a group layoff). You have 7 days after signing to revoke. The agreement must specifically mention ADEA claims by name. You must be advised in writing to consult an attorney. If your severance agreement doesn't comply with OWBPA requirements and you're over 40, the ADEA waiver may not be enforceable — though the rest of the agreement may still be.

Non-Disparagement, Confidentiality, and Cooperation Clauses

Beyond the release, severance agreements typically include three additional restrictions. A non-disparagement clause prohibits negative public statements about the company, its leadership, or products — potentially forever. A confidentiality clause keeps the agreement terms (especially the payment amount) and the circumstances of your departure private. A cooperation clause requires you to assist with future litigation or regulatory investigations involving the company, potentially requiring your time and involvement long after you've moved on. Whether these clauses are mutual — restricting both you and the company — is worth scrutinizing. A company that won't include mutual non-disparagement may be planning to characterize your departure negatively.

Non-Compete and Non-Solicitation: Check If They Appear Here

Some severance agreements include non-compete or non-solicitation clauses as conditions of receiving payment — separate from any in your original employment contract. By signing, you may be accepting new post-employment restrictions you didn't have before. Courts scrutinize non-competes in severance agreements more carefully than those in employment contracts because the power imbalance at termination is particularly severe. If a non-compete appears in your severance agreement and wasn't in your original contract, it's worth negotiating to remove or narrow it before signing.

Negotiating a Severance Agreement

Severance offers are almost always negotiable. Leverage comes from the value of what you're signing away — the broader your potential legal claims, the more valuable your release is to the employer. Items worth negotiating: total payment amount (one to two weeks per year of service is common but not required); extension of health insurance coverage; continuation of equity vesting; a neutral reference policy; removal or narrowing of non-compete provisions; and additional time to review beyond the minimum. If you experienced discrimination or harassment, the value of your release is higher — consulting an employment attorney before signing can significantly increase your settlement.

Common Confusing Clauses in a Severance Agreement — Explained

These are the clauses people most often misunderstand or overlook. PlainDoc flags all of them automatically when you explain your document.

General Release of All Claims: By signing, you permanently waive your right to sue for anything arising from your employment — including discrimination, wrongful termination, and wage claims — even claims you don't know about yet. Understand what claims you might have before signing them away.
Known and Unknown Claims: You're waiving rights to claims you haven't discovered yet, in addition to known claims. Some states (including California) require specific acknowledgment language for unknown claims releases. This is a reason to review the agreement with an attorney before signing.
21-Day / 45-Day Consideration Period (ADEA): If you're 40 or older, federal law gives you at least 21 days to consider the agreement (45 days in a group layoff). You cannot be pressured to sign faster. Signing before the period expires is your choice.
7-Day Revocation Period: Workers over 40 have 7 days after signing to revoke an ADEA waiver. The agreement isn't final until this period expires. Payments typically begin after the revocation period ends, not on the signature date.
Non-Disparagement Clause: You agree not to make negative public statements about the company indefinitely. Check whether this is mutual. A one-sided clause that restricts you but not the company means they can characterize your departure however they wish while you're legally silenced.
Cooperation Clause: You agree to assist with future litigation or investigations even after leaving — potentially indefinitely. Negotiate to limit the scope, require reasonable advance notice, and ensure compensation for significant time commitments.

Explain My Severance Agreement — Free

How to Explain Your Severance Agreement with PlainDoc

Obtain the full text of the severance agreement — do not sign anything at the termination meeting.
Paste or upload it into PlainDoc on this page.
Select 'Severance Agreement' as the document type.
Click 'Explain My Document'.
Review the release of claims, non-disparagement, confidentiality, and any non-compete provisions.
Consider consulting an employment attorney — many offer free consultations and can increase your settlement.
Use the full consideration period; do not let the employer pressure you to sign faster.

Try the Explainer Now — Free

Common Questions About Severance Agreements

Do I have to sign a severance agreement?: No. Severance agreements are voluntary. Your employer is offering money in exchange for a legal waiver — you can decline. If you decline, you don't receive the payment (unless your employment contract guarantees severance), but you retain all legal rights including the right to sue. The decision should be based on whether the offered amount is fair compensation for the claims you're releasing.
How long do I have to decide whether to sign?: If you're 40 or older, federal law gives you at least 21 days (45 days in a group layoff) and 7 days to revoke after signing. If you're under 40, there's no federally mandated period, but a few days to a week is typical. You can always ask for additional review time — a reasonable employer should accommodate a request for 5–7 business days.
What claims am I giving up when I sign?: Typically all claims from your employment — discrimination, wrongful termination, retaliation, breach of contract, and wage violations through the signing date. Before signing, consider whether you experienced any discrimination, harassment, or wage violations, because you're permanently waiving those claims.
Is severance pay taxable?: Yes. Severance is treated as ordinary income and is subject to federal and state income tax, Social Security, and Medicare taxes. Employers are required to withhold taxes. If you're also receiving payments attributed to physical injury or attorney's fees from an embedded legal settlement, different tax treatment may apply.
Can I collect unemployment if I sign a severance agreement?: In most states, yes — severance generally doesn't disqualify you from unemployment benefits, though some states treat certain severance as wages that delay eligibility. A severance agreement cannot require you to waive unemployment rights, which are established by state law and are non-waivable.

Key Terms in Severance Agreements

These legal terms frequently appear in severance agreements. Click any term to read a plain-English explanation.

View full legal glossary →

Disclaimer: PlainDoc provides plain-language explanations for informational purposes only. This is not legal advice. For important legal decisions, consult a licensed attorney in your jurisdiction.