Severance

Severance agreement requirements: what makes a release valid and enforceable

A severance agreement that fails on consideration, OWBPA requirements, or non-waivable rights is worthless to the employer. This guide covers the legal foundations HR and legal teams need to draft and review enforceable releases.

40+

OWBPA applies at this age

Employees 40 or older signing a release of age discrimination claims require specific OWBPA procedures. Missing them voids the age discrimination waiver.

Cannot

Waive an EEOC charge right

A severance agreement cannot prevent an employee from filing a charge with the EEOC. It can waive the right to monetary recovery, but not the right to file.

Above and beyond

Consideration requirement

Severance must be something the employee is not already entitled to. Paying only what is already owed under company policy is not valid consideration for a release.

SeveranceOWBPARelease of Claims

Overview Consideration Non-waivable rights OWBPA requirements Non-disparagement Non-compete COBRA and benefits FAQ

What a severance agreement does

A severance agreement is a contract between an employer and a departing employee. In exchange for severance pay and other benefits, the employee releases legal claims against the employer. For the agreement to be enforceable, it must satisfy contract formation requirements (offer, acceptance, consideration) and comply with specific statutes that restrict what can be waived and how.

For employees 40 or older, the OWBPA adds additional requirements on top of ordinary contract law. For any employee, certain rights simply cannot be waived regardless of what the agreement says.

Get the fundamentals right

A severance agreement that fails on consideration, OWBPA requirements, or non-waivable rights gives the employee the worst-case outcome for the employer: they receive severance and can still sue.

Consideration: what you must offer

A release of claims is only enforceable if the employee received something of value they were not already entitled to. Key rules:

Paying severance the employee is already owed under an existing policy or contract is NOT adequate consideration for a new release. You must offer something additional.

Additional consideration can be: a severance payment beyond the policy amount, an extended benefits period, accelerated vesting of equity, outplacement services, or a neutral reference agreement.

For employees 40+, the OWBPA requires that the additional consideration be specifically designated as consideration for the ADEA waiver.

Review your existing severance policy before the RIF

If the policy already provides 2 weeks per year of service, the release agreement must offer more to create valid consideration for a release. Even 1 additional week is sufficient. Otherwise you are paying severance with no enforceable release.

Rights that cannot be waived

Several rights cannot be waived in a severance agreement regardless of what the employee signs.

Right to file an EEOC charge

An employee can always file a discrimination charge with the EEOC. A severance agreement can waive the right to monetary recovery from a charge, but not the right to file one. A clause that says "you agree not to file any charge with the EEOC" is unenforceable and may expose the employer to additional retaliation liability.

Workers’ compensation claims

State workers’ comp rights generally cannot be waived in a severance agreement.

Unemployment compensation

The right to file for unemployment benefits cannot be waived.

NLRA rights

The right to engage in protected concerted activity under the National Labor Relations Act cannot be waived. Overbroad non-disparagement clauses that prohibit employees from discussing wages or working conditions with coworkers may violate the NLRA. The NLRB has taken an increasingly aggressive position on this.

Vested retirement benefits

ERISA-vested pension or 401(k) benefits cannot be waived.

Minimum wage and overtime claims

FLSA claims for unpaid minimum wage or overtime typically cannot be waived without DOL or court approval.

Non-disparagement clauses are the most common source of enforceability problems

A clause that prohibits an employee from "making any negative statements about the company" may be enforceable. A clause that prohibits discussing wages, working conditions, or the terms of the separation with other employees is likely unenforceable under the NLRA.

OWBPA requirements for employees 40+

The release agreement itself must satisfy all of these requirements for the ADEA waiver to be valid. These are not boilerplate suggestions. They are statutory requirements.

Agreement drafting requirements

Specifically mention the ADEA by name ("including claims under the Age Discrimination in Employment Act")

Advise the employee in writing to consult with an attorney before signing

Provide the consideration period: 21 days for individual terminations, 45 days for group terminations

State that the employee has 7 days after signing to revoke

State the effective date (day 8 after signing)

Naming the ADEA is required

A release that says “all federal and state employment laws” without naming the ADEA does not satisfy OWBPA. The statute must be identified by name.

Use a separate ADEA waiver paragraph

Many employers include a clearly labeled section: "Waiver of Age Discrimination Claims." This makes the age-specific waiver visible to the employee and their attorney, reducing the risk of an OWBPA challenge.

For the decisional unit disclosure requirements applicable to group terminations, see the OWBPA compliance guide.

Non-disparagement clauses

Non-disparagement is one of the most negotiated provisions in a severance agreement.

What it typically covers

Employee agrees not to make negative, disparaging, or defamatory statements about the company, its officers, directors, and products. Company agrees not to make negative statements about the employee. Mutual non-disparagement is increasingly standard.

NLRA limits

The NLRB’s 2023 McLaren Macomb decision held that overbroad non-disparagement clauses that would restrict employees from discussing wages, hours, or working conditions with other employees violate Section 7 of the NLRA. The clause should be limited to statements that are false or would damage the company’s reputation, not all “negative” statements. Consider carving out “statements made in connection with any government investigation or proceeding.”

California

California courts have been skeptical of broad non-disparagement clauses. AB 2770 (2018) provides a safe harbor for truthful statements made in the context of a discrimination complaint.

The safest non-disparagement clause

Narrow in scope (false and damaging statements only), mutual, and with an explicit carve-out for truthful statements made to government agencies. Broad clauses that cover all negative statements are increasingly vulnerable to NLRB challenges.

Non-compete enforceability

Non-competes in severance agreements are subject to state law, which varies enormously. A non-compete that is enforceable in Texas may be void in California.

State	Enforceability	Key rule
California	Not enforceable	California Business and Professions Code § 16600 prohibits non-competes for employees. Void regardless of where the agreement was signed.
Minnesota	Not enforceable (as of 2023)	Minnesota banned non-competes for agreements entered after Jan 1, 2023.
Oklahoma	Not enforceable	Prohibited by statute with narrow exceptions.
New York	Limited enforceability	Courts apply strict “legitimate business interest” test. Overbroad agreements routinely rejected. Pending legislation may ban them entirely.
Texas	Enforceable if reasonable	Must be ancillary to an enforceable agreement, reasonable in time, geography, and scope. Courts will reform (blue-pencil) overbroad agreements.
Florida	Generally enforceable	Florida Statutes § 542.335 allows non-competes; courts apply a presumption of enforceability.
Illinois	Enforceable above salary threshold	Non-competes enforceable only for employees earning above $75,000/year (rising to $100,000 by 2027).

The FTC’s 2024 rule banning most non-competes was struck down in federal court. Non-compete enforceability remains governed by state law.

COBRA and benefits continuation

The severance agreement should address how benefits end and COBRA begins.

Health coverage terminates at end of the month of separation (most plans) or on the separation date. State this explicitly in the agreement.

The employer must notify the plan administrator of the qualifying event within 30 days.

The plan administrator must send the COBRA election notice within 14 days after that.

The employee has 60 days to elect COBRA.

The agreement should not promise to pay COBRA premiums unless the employer intends to and has the administrative capacity to do so accurately. This creates a separate ongoing obligation.

If offering subsidized COBRA, be specific

State the number of months, the coverage level, and what happens if the employee obtains other coverage. Vague promises to 'pay COBRA for 3 months' create disputes about what was actually owed.

Free download

Get the full RIF compliance checklist

66 steps across 9 phases, from selection criteria through post-RIF close-out. Formatted as an Excel workbook your team can track in real time.

Frequently asked questions

Does a severance agreement need to be in writing?

Yes. For a release of claims to be enforceable, it must be in writing. Oral promises of severance in exchange for a release are generally not enforceable.

Can an employee negotiate the terms of a severance agreement?

Yes. Severance agreements are negotiable. The consideration period exists precisely to allow employees time to review and negotiate. Employers are not required to negotiate, but employees may propose changes. Material changes restart the OWBPA consideration period for employees 40+.

What happens if an employee signs and then revokes?

For employees 40+, the 7-day revocation right is absolute. If the employee revokes, the agreement is void, the employee owes no returned consideration (they cannot be required to return any amounts paid before revocation), and both parties are in the same position as before signing.

Does the severance agreement cover claims the employee does not know about?

Generally yes, if the release language is broad enough. Releases typically cover "known and unknown claims" and explicitly waive California Civil Code section 1542 (for California employees) or equivalent state provisions. Unknown-claim waivers are enforceable in most states if the release is clear.

Can a severance agreement require the employee not to apply for future employment at the company?

Yes, in most states. A no-rehire clause is generally enforceable. California AB 749 (2020) limits no-rehire clauses in settlement agreements involving harassment or discrimination claims, but does not prohibit them in standard RIF severance agreements.

Related resources

OWBPA compliance guide

Decisional unit disclosures and group termination requirements

Severance calculator

Estimate severance amounts by tenure, level, and state

Severance checklist

Step-by-step checklist for preparing and executing severance agreements

People Plan

OWBPA-compliant severance agreements, generated

People Plan generates OWBPA-compliant severance agreements with the correct consideration periods, revocation language, and decisional unit disclosures, so legal reviews rather than drafts.