Severance Agreement Checklist

What goes in a severance agreement

A severance agreement is a contract between an employer and a departing employee. The employer pays money (or other benefits) and the employee releases legal claims. For the agreement to hold up, it must satisfy several requirements: valid consideration, a knowing and voluntary release, and specific disclosures when the employee is 40 or older.

Agreements commonly cover twelve areas. The checklist below walks through each one.

1.Parties and effective date

2.Consideration and payment

3.Benefits continuation and COBRA

4.Release of claims

5.Confidentiality

6.Non-disparagement

7.Restrictive covenants

8.Return of property

9.Post-employment cooperation

10.Consideration and revocation periods

11.Governing law and dispute resolution

12.Final review gates

Consideration and payment

Consideration is the payment or benefit the employer provides in exchange for the release. It must be something the employee is not already entitled to receive. Final wages, accrued PTO (in states that require payout), and vested benefits are already owed and cannot serve as consideration.

What qualifies as valid consideration

Additional weeks or months of base pay beyond what policy requires
Continued health coverage subsidy beyond the last day
Accelerated equity vesting
Outplacement services not otherwise provided
A positive reference letter not otherwise guaranteed

State payment-on-separation laws

Many states require final wages (and in some states accrued PTO) to be paid within 24 to 72 hours of termination, regardless of whether a severance agreement exists. Do not delay required final pay while waiting for the agreement to be signed.

Tax treatment

Severance paid in a lump sum is typically treated as W-2 wages subject to withholding. Payments structured as damages for non-physical injuries may be treated differently. Deferred payments that cross a calendar year require analysis under IRC Section 409A to avoid additional tax penalties.

Clawback provisions

If the agreement includes a clawback (severance is repaid if the employee violates the agreement), define the triggering conditions precisely. Vague clawbacks are difficult to enforce and can deter signing.

Release of claims

The release is the core of the agreement. It should be broad enough to cover the claims the employer wants to foreclose, but it has firm outer limits: you cannot waive the right to file a charge with a government agency, you cannot waive future claims, and the OWBPA sets specific requirements for ADEA waivers.

The table below shows which claim categories can be waived, where court approval is required, and where carve-outs are mandatory regardless of what the agreement says.

Claim category	Can be waived?	Notes
Title VII, ADA, FMLA discrimination claims	Yes	Must be knowing and voluntary; past claims only
ADEA age discrimination claims (employees 40+)	Yes, with OWBPA requirements	See OWBPA section below
FLSA unpaid wage claims	Yes, with court or DOL approval in most circuits	Do not rely on a private release alone for FLSA claims
Workers compensation claims	No in most states	State law governs; consult local counsel
Right to file EEOC / NLRB charge	No	Can waive right to damages, not right to file
Vested 401(k) or pension benefits	No	ERISA prohibits waiver of vested plan benefits
Future claims after date of signing	No	Release applies only to claims existing at signing
California unknown claims (§ 1542)	Yes, with explicit waiver language	Must cite Civil Code § 1542 expressly

Most common drafting error

Including language that purports to waive the right to file an EEOC charge. The EEOC has taken the position that such provisions are unenforceable per se, and their presence in the agreement may signal other problems to a reviewing court. Remove them entirely rather than trying to narrow them.

OWBPA requirements for employees 40 or older

The Older Workers Benefit Protection Act adds mandatory requirements whenever an employee 40 or older is asked to waive ADEA (age discrimination) claims. Every requirement must be satisfied. A waiver that misses even one is void as to the age claims.

Name the ADEA

The agreement must specifically reference the Age Discrimination in Employment Act. "All federal claims" or "all discrimination claims" is not enough.

Advise to consult an attorney

The employee must be advised in writing to consult an attorney before signing. This must appear in the agreement itself, not just a cover letter.

21-day consideration period

For individual terminations: 21 calendar days to review. The employee may sign sooner, but the period cannot be shortened by the employer.

45-day consideration period

For group terminations (2 or more employees in a program): 45 calendar days. The same clock applies to everyone in the group.

7-day revocation right

After signing, the employee has 7 calendar days to revoke. The agreement is not effective until the revocation period expires.

No payment before revocation expires

Do not pay any severance until after the 7-day window closes. Early payment can create an argument that the waiver was coerced.

Decisional unit disclosure (group only)

In a group termination, attach a list of every person in the selection pool: job title, age, and whether selected. This must cover the whole decisional unit, not just those receiving severance.

Future claims excluded

The waiver covers only claims that exist as of the signing date. The agreement cannot waive age discrimination claims arising after signing.

Decisional unit disclosure template

If you are conducting a group termination that includes employees 40 or older, you need a decisional unit disclosure. See the OWBPA Decisional Unit Disclosure Template for the free Excel template with instructions.

Non-competes and restrictive covenants

Severance agreements often include or reaffirm non-competes and non-solicitation provisions. Enforceability varies widely by state and has shifted significantly in recent years.

Check enforceability before including

Non-compete

Non-competes are void by statute in California, North Dakota, Oklahoma, and Minnesota. Several other states have narrow enforceability rules. The FTC non-compete rule (which would have banned most non-competes nationwide) was blocked in court as of mid-2024; check current status with counsel. In states that allow non-competes, they must be reasonable in scope, geography, and duration.

Customer and employee non-solicitation

Non-solicitation

Non-solicitation of customers and employees is generally more enforceable than broad non-competes, but California courts have limited even these. Define "solicit" clearly, list or describe the covered customers, and set a defined duration (12 to 24 months is typical).

Additional consideration may be required

Consideration

Some states (Illinois, Washington, Oregon, and others) require independent consideration beyond standard severance for a restrictive covenant signed at separation. Check state law before conditioning severance on a new non-compete.

Benefits and COBRA

The benefits section of a severance agreement covers health coverage, retirement accounts, equity, and accrued paid time off. Several of these have independent statutory requirements that exist regardless of what the agreement says.

COBRA notice (required)

The employer must provide a COBRA election notice within 14 days of the qualifying event (last day of employment). This is a federal requirement, not a negotiated item. Failure to provide timely notice triggers statutory penalties of up to $110 per day.

Health coverage end date

Confirm whether coverage ends on the last day of employment or the last day of the month. This affects when COBRA begins and what the employee owes for the gap period.

COBRA subsidy

If the employer is paying some or all of the COBRA premium, state the amount and duration in the agreement. Tax treatment of employer COBRA subsidies changed under the ARP (2021); consult tax counsel for current rules.

Accrued PTO payout

California, Illinois, Colorado, and several other states require payout of accrued vacation on separation. This is a wage, not a severance benefit, and cannot be waived in the agreement.

Equity (stock options and RSUs)

The equity plan documents typically govern vesting cutoffs and exercise windows post-separation, not the severance agreement. Reference the applicable plan. Note the post-termination exercise window explicitly, as many employees miss it.

401(k) and retirement accounts

ERISA governs. Vested balances cannot be forfeited. The agreement should communicate rollover options and the timeline for distribution, but cannot modify plan terms.

Common mistakes

Most severance agreement problems fall into three categories: paying too early, missing OWBPA requirements, and including unenforceable provisions that signal a poorly drafted agreement to opposing counsel.

Paying before the revocation period expires

Timing error

Paying a 40+ employee before the 7-day OWBPA revocation window closes is one of the most common errors. It does not automatically void the waiver, but it creates an argument that the employer pressured the employee to sign quickly. Always wait.

Using "all federal claims" instead of naming the ADEA

Drafting error

OWBPA requires the agreement to name the Age Discrimination in Employment Act explicitly. Courts have held that omnibus language releasing "all federal discrimination claims" is insufficient. Name the statute.

Omitting the decisional unit disclosure in group terminations

Disclosure error

In a group termination program, the OWBPA requires a list of the ages and job titles of all employees in the decisional unit, both selected and not selected. Omitting this disclosure voids the ADEA waiver for all employees in the group.

Waiving the right to file an EEOC charge

Enforceability error

Including a provision that prevents the employee from filing an EEOC or NLRB charge is unenforceable. Remove it entirely. The employee can waive the right to damages from such a proceeding, but not the right to participate in the agency process.

Using a non-compete in a state where it is void

State law error

Including a non-compete for a California, Minnesota, North Dakota, or Oklahoma employee is not just unenforceable on that provision. It signals to plaintiffs counsel that the agreement was drafted without attention to state law, which invites broader scrutiny of the other provisions.

Presenting the agreement before the WARN notice period expires

Process error

If WARN notice is required, the employer must provide 60 days advance notice before separation. Presenting a severance agreement conditioned on signing before the WARN period expires can undermine the voluntariness of the waiver. Sequence matters: WARN first, then severance agreement.

Download the checklist

The Excel workbook has three tabs: an Instructions tab, a Checklist tab with all 12 sections and CRITICAL flags for legally sensitive items, and an OWBPA Requirements tab with the specific requirements for employees 40 or older. Use it as a review gate before any agreement goes to an employee.

12 sections

From parties and consideration through governing law and final review gates

CRITICAL flags

Items that carry direct legal consequence if missed or done incorrectly

OWBPA tab

All 9 OWBPA requirements for employees 40+ in a dedicated review tab

Free download

Get the Severance Agreement Checklist

12 sections, CRITICAL flags for legally sensitive items, and a dedicated OWBPA tab for employees 40 or older. Free Excel download.

Frequently asked questions

What must a severance agreement include to be enforceable?

A valid severance agreement must provide consideration the employee is not already owed (such as additional pay beyond the final paycheck), clearly state what claims are being released, and give the employee a reasonable time to review it. For employees 40 or older, OWBPA requirements apply: the agreement must name the ADEA specifically, provide 21 or 45 days to consider (individual vs. group termination), include a 7-day revocation right, and advise the employee in writing to consult an attorney.

What is the consideration period for a severance agreement?

For employees under 40, there is no federal minimum, but best practice is 7 to 21 days. For employees 40 or older, the OWBPA requires 21 days for individual terminations and 45 days for group terminations. After signing, employees 40+ have 7 days to revoke. Severance should not be paid until the revocation period expires.

Can a severance agreement waive the right to file an EEOC charge?

No. A severance agreement can waive the right to collect monetary damages from an EEOC or NLRB proceeding, but it cannot prevent an employee from filing a charge with the EEOC, NLRB, or other government agencies. Agreements that attempt to waive the right to file are unenforceable as to that provision.

Are non-compete clauses in severance agreements enforceable?

It depends on the state. Non-competes are void and unenforceable in California, North Dakota, Oklahoma, and Minnesota. Other states require that non-competes be reasonable in duration, geographic scope, and the interest they protect. Many states require additional consideration beyond standard severance pay for a non-compete entered into after employment begins. Always review with counsel before including a non-compete in a severance agreement.

Does the employer have to pay for COBRA in a severance agreement?

No federal law requires the employer to subsidize COBRA. The employer must provide a COBRA election notice within 14 days of the qualifying event (separation), and the employee then decides whether to elect continuation coverage at their own expense. Many employers offer a COBRA subsidy as part of the severance package, but it is a negotiated benefit, not a legal requirement.

What voids an OWBPA waiver for an employee 40 or older?

Common defects that void an OWBPA waiver include: failing to name the ADEA explicitly, paying severance before the 7-day revocation period expires, not providing the required 21-day (individual) or 45-day (group) consideration period, omitting the advice-of-counsel notice, or providing consideration the employee was already owed. In a group termination, failing to attach the decisional unit disclosure (job titles and ages of all employees in the selection pool) also voids the waiver.

Legal disclaimer

This checklist is for informational purposes only and does not constitute legal advice. Employment law requirements vary by state, change over time, and depend on the specific facts of each situation. Always have employment counsel review severance agreements before presenting them to employees.