What should I know before signing a severance agreement?

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What to do
The evidence
Belief checked
Unsettled law
Common questions

The short answer. Before you sign, know that a severance agreement can ask you to waive (give up) legal claims against your employer in return for severance pay. The EEOC (the US Equal Employment Opportunity Commission) says that even if you sign, you can still file a discrimination charge, meaning a signed statement to the EEOC that an employer discriminated. But the EEOC says you can waive the right to recover (win money) from your employer.

If you are 40 or older, the EEOC says a waiver of age discrimination claims must give you at least 21 days to consider the offer (45 days in a group layoff).

Already signed? The EEOC says you can still file a discrimination charge. If you are 40 or older and the agreement waives age claims, the EEOC says the waiver must give you 7 days after signing to revoke (cancel) it, and that neither you nor your employer can change or waive that 7-day period.

In many states, severance pay counts as deductible income, meaning income that can reduce your unemployment benefits (US Department of Labor, 2023 comparison of state unemployment laws). Severance pay is also income you must report on your taxes (IRS Publication 525, 2025).

So don't sign right away: read what it asks you to give up, and consider having an attorney read it (our advice).

What to do next (our advice)

Don't sign on the day you get the agreement. If you are 40 or older, the EEOC says you must get at least 21 days to consider a waiver of age claims (45 in a group layoff). If you feel rushed, the EEOC says to ask for more time in writing (see "Time to decide" below).
Consider having an attorney read the agreement before you sign. For age claims, the EEOC says the waiver itself must advise you in writing to consult an attorney.
Check that the offer gives you something extra, and that it asks for nothing you can't sign away. The EEOC says what you get for signing must go beyond what you are already owed. The EEOC's employee checklist also lists claims the agreement should not ask you to release, such as unemployment benefits (see "What a waiver can and cannot cover" below).
Ask an attorney or the NLRB (the National Labor Relations Board) about any terms that bar you from criticizing the employer or discussing the agreement. A 2024 opinion of the Sixth Circuit (a federal appeals court) reports a 2023 NLRB ruling against such terms in one employer's agreements. The 2024 Sixth Circuit opinion says the court did not address whether the Board was right to reverse its earlier test, and we could not confirm where the 2023 ruling stands today (see "Non-disparagement and confidentiality terms" below).
If you think the layoff was discriminatory, note the date now. The EEOC says a charge generally must be filed within 180 days, or 300 in some places (see "Deadlines for a discrimination charge" below). The EEOC says signing a waiver does not take away your right to file a charge.
Ask your state unemployment agency how the severance will count. The US Department of Labor's 2023 comparison of state unemployment laws says many states treat severance as deductible income, and that people receiving it may be considered not unemployed, or not totally unemployed, for the weeks concerned.
Ask whether the employer will pay part of your COBRA premium (the cost of keeping your former employer's health plan). The US Department of Labor says employers can agree to cover some or all of your COBRA premium as part of a separation.

What the evidence says

What a severance agreement is

The EEOC says a severance agreement is a contract, or legal agreement, between an employer and an employee that sets out the terms of an employment termination, such as a layoff, and that it is sometimes called a "separation" or "termination" agreement.
The EEOC says what you are offered for waiving the right to sue must be something of value on top of what you are already entitled to. That offer cannot simply be a pension benefit or payment for earned vacation or sick leave that you are already entitled to.
The US Department of Labor says there is no requirement for severance pay in the Fair Labor Standards Act (the federal minimum wage and overtime law), and that severance pay is a matter of agreement between an employer and an employee or the employee's representative.

Gap: that statement covers one federal law. Our checked sources hold no official statement on every federal law, and New Jersey's law below requires severance. Your state labor department can say what applies to you.

What a waiver can and cannot cover

The EEOC says a severance agreement may use broad language to describe the claims you are releasing.
The EEOC says the Age Discrimination in Employment Act (ADEA) forbids age discrimination against people age 40 or older. The EEOC says a waiver of age claims that fails any of the seven OWBPA requirements is invalid and unenforceable.
The EEOC's Q&A, linked in the sources below, lists all seven.
The EEOC says the ADEA does not protect workers under 40. For waivers of rights under Title VII, the ADA or the Equal Pay Act, the EEOC says most courts consider all relevant factors, the totality of the circumstances. In the EEOC's account, those circumstances include whether the waiver was clear, whether fraud or duress (improper pressure) was involved, and whether you had enough time.
The EEOC's employee checklist says to make sure your employer is not asking you to release claims for unemployment compensation, workers compensation, claims under the Fair Labor Standards Act, COBRA health insurance benefits, or vested benefits (benefits you have already earned the right to keep) under a retirement plan covered by ERISA (the federal retirement plan law).
The EEOC says state law typically governs how a severance agreement is read and whether its waivers are valid. To find out whether an agreement is enforceable in your state, the EEOC says to contact your state labor law department or an attorney.

Gap: our checked sources do not say what happens if you decline to sign. An attorney can say what your agreement and your state's law mean for you.

Time to decide: the 21, 45 and 7 days

The EEOC says a waiver of age claims must give you at least 21 days to consider the offer, counted from the employer's final offer.
The EEOC says that if you are 40 or older, laid off in a group and asked to sign a waiver, the employer must give written notice of the layoff and at least 45 days to consider the waiver before signing. The EEOC's employee checklist puts it this way for people 40 or older: if you and at least one other person are being laid off in a reduction in force (a group layoff) at the same time, you must be given 45 days to consider the agreement.
The EEOC says a waiver of age claims must give you 7 days after signing to revoke it, and that neither you nor your employer can change or waive that 7-day revocation period.
If you are being rushed to sign a severance agreement, the EEOC's employee guidance says to ask for more time and put the request in writing.

What signing can and cannot take away

The EEOC says a charge of discrimination is a signed statement asserting that an employer, union or labor organization engaged in employment discrimination. Except under the Equal Pay Act, the EEOC says, you must file a charge before you can file a job discrimination lawsuit against your employer.
The EEOC says that even if you signed a waiver of claims in a severance agreement, you can still file a charge with the EEOC if you believe you were discriminated against.
The EEOC says your right to file a charge is protected, but you can waive the right to recover from your employer, either in your own lawsuit or in a suit the EEOC brings on your behalf.
If you sign a waiver and later sue, the EEOC says a court will first decide whether the waiver is valid. If the court finds the waiver valid, the EEOC says it will dismiss your discrimination claim.
The EEOC says terms in severance agreements that try to stop you from filing an EEOC charge or taking part in an EEOC investigation are unenforceable, so you cannot be required to return your severance pay before filing a charge.

Deadlines for a discrimination charge

The EEOC says a charge generally must be filed within 180 calendar days of the discrimination, extended to 300 days if a state or local agency enforces a law against discrimination on the same basis.
For age discrimination, the EEOC says the deadline is extended to 300 days only if a state law prohibits age discrimination in employment and a state agency enforces it. For age discrimination, the EEOC says a local law alone does not extend the deadline.
The EEOC says the time limits for filing a charge generally are not extended while you try to resolve a dispute through an internal or union grievance, arbitration or mediation, though those can run alongside an EEOC charge.

Non-disparagement and confidentiality terms

If your agreement bars you from discussing its terms or criticizing the employer, the National Labor Relations Board (NLRB) ruled against such terms in one case in 2023. We could not confirm where that 2023 NLRB ruling stands today.

A 2024 opinion of the federal appeals court for the Sixth Circuit, NLRB v. McLaren Macomb, says a majority of the NLRB held in February 2023, as an alternative ground (a second, separate reason), that the text alone of the severance agreements in that case violated the National Labor Relations Act. According to the 2024 Sixth Circuit opinion, those agreements made their terms confidential, with some exceptions, and barred statements that could disparage (say something negative about) the employer.
The same Sixth Circuit opinion, which is marked "not recommended for publication," upheld the NLRB's finding on a narrower ground, under the Board's earlier test, which asks whether the agreement was offered in circumstances that tend to infringe on workers' labor law rights. The 2024 Sixth Circuit opinion upheld the Board's finding under that test because the employer had also failed to bargain with the union and dealt directly with the workers.
The Sixth Circuit's opinion says the court did not address whether the NLRB was right to reverse that earlier test.
The NLRB's announcement of its memo GC 25-05 says its Acting General Counsel rescinded (withdrew) certain earlier memos, including GC 23-05 on severance agreements.
The National Labor Relations Act's definition of "employee" leaves out agricultural laborers, independent contractors and supervisors, among others. The National Labor Relations Act's definition of "employer" leaves out federal, state and local government. So a ruling under the National Labor Relations Act may not reach you if you fall in one of those groups.

Gap: the official sources we could read stop at that opinion and that memo. We could not open the NLRB's website, so we cannot say whether the Board still applies its 2023 decision, has changed it, or how it treats workers without a union. Do not assume it protects you, and ask the NLRB or an attorney before relying on it either way.

How severance pay itself works

Unemployment benefits. The US Department of Labor's 2023 comparison of state unemployment laws says many states treat severance pay as deductible income (income that can reduce your unemployment benefits), and that people receiving severance may be considered not unemployed, or not totally unemployed, for the weeks concerned.
Unemployment in Texas. The Texas Workforce Commission says severance pay will not stop unemployment benefits, but that benefit payment is delayed until the period the severance covers has expired.
Health insurance. The US Department of Labor says you usually pay the full COBRA premium (the cost of keeping your former employer's health plan) unless your employer agrees to cover some or all of it as part of your separation.

Gap: our checked sources hold severance rules for only a few states, and no government measure of typical severance. For your state, ask its labor department and unemployment agency.

If you work in New Jersey

New Jersey's WARN law (its rule on notice before mass layoffs) requires severance pay for each employee terminated in a covered event: one week of pay for each full year of employment. New Jersey's WARN law adds four more weeks of pay if the employer gives less than the required notification.
The New Jersey labor department's form says an individual or private business must comply with the law if all three of these are true:
- it anticipates the listed events;
- it employs the workforce at a place of employment in operation for longer than three years;
- it employs 100 or more employees.
New Jersey's law covers two kinds of event, each within 30 days:
- a mass layoff of 50 or more employees at or reporting to that place, except a mass layoff made necessary because of a fire, a natural disaster or another event the law lists;
- a transfer or closing of operations ending 50 or more jobs.
New Jersey's law counts a layoff as a termination only if there is no commitment to reinstate (take back) the employee within six months. New Jersey's law does not count a voluntary departure or retirement, a discharge or suspension for misconduct connected with the employment, or a seasonal layoff as a termination. New Jersey's law also does not count a case where the employer offers the same or an equivalent job in the state within 50 miles.
New Jersey's law says no waiver of this severance right is effective unless the state's Commissioner of Labor and Workforce Development or a court approves it. New Jersey's law says an aggrieved (wronged) employee or former employee may sue in Superior Court.

How much severance is typical

Challenger, Gray & Christmas says its 2025 benchmarking report, using 2024 data, put average severance across all industries at 19.3 weeks. In the same 2025 Challenger, Gray & Christmas write-up, its data shows individual contributors (people who don't manage others) receive less than 10 weeks on average.
An LHH web page, read in October 2026, says most US companies pay about 3 to 6 weeks of severance. LHH cites what it calls its "2027 Severance and Separation Benefits Benchmark Study" of 600 US leaders.
These two sources are far apart and neither is a government count, so read them as rough ranges.

A popular belief, checked: "Signing a severance agreement means you give up the right to sue"

Partly. When we asked AI assistants what severance pay is in October 2026, one answer described the release of claims in a severance agreement this way: "you give up the right to sue the employer".

A waiver can give up claims, but the EEOC says you can still file a discrimination charge with it after signing, and that a waiver of age claims cannot cover claims that arise after you sign.

The EEOC also says you can waive the right to recover from your employer. So if your agreement waives that right and the waiver is valid, you can still file a charge, but you may not be able to win money from your employer through it.

Where the law is unsettled

Do you have to give the money back before suing? The EEOC says that under the ADEA you do not have to return severance pay before bringing an age discrimination claim, but that under Title VII, the ADA or the Equal Pay Act the law is less clear. Under Title VII, the ADA or the Equal Pay Act, the EEOC says some courts conclude a waiver cannot be challenged unless the employee returns the pay, while others let employees proceed without returning it.
Can a severance agreement bar you from discussing it or criticizing the employer? This is open too: see "Non-disparagement and confidentiality terms" above.

Questions people also ask

What is the over 40 clause in a severance agreement?

If you are 40 or older and asked to waive age discrimination claims, the EEOC says the waiver must give you at least 21 days to consider it (45 days in a group layoff), 7 days after signing to revoke (cancel) it, and written advice to consult an attorney.

What voids a severance agreement?

The EEOC says a waiver of age claims that fails any of the seven OWBPA requirements is invalid and unenforceable, and that terms trying to stop you from filing an EEOC charge are unenforceable too. For other laws, what courts weigh is listed under "What a waiver can and cannot cover" above. Gap: our checked sources don't cover what voids the rest of an agreement. Your state labor department or an attorney can say.

Are severance packages taxed?

Yes. IRS Publication 525 (2025) says you must include severance pay in income, and that severance payments are subject to Social Security and Medicare taxes and income tax withholding. In United States v. Quality Stores (572 U.S. 141, decided in 2014), the Supreme Court held that the severance payments in that case are taxable wages under FICA (the Federal Insurance Contributions Act, which taxes wages to fund Social Security and Medicare benefits). The payments in United States v. Quality Stores went to employees involuntarily terminated as part of a Chapter 11 bankruptcy, under plans not tied to state unemployment insurance.

What kinds of severance packages are common?

Among companies with a standard layoff package, 52% included outplacement (paid help finding a new job), 40% paid bonuses the employee was previously eligible for, and 17% continued stock options (RiseSmart, a provider of transition services, 2014 survey of US HR professionals, reported by SHRM). That 2014 RiseSmart survey comes from a firm that provides such services, so read it as what packages can include.

Can I negotiate my severance package?

You can ask. The EEOC's employee checklist says you may want advice on whether to ask your employer to change any of the terms. The US Department of Labor says your employer can agree to cover some or all of your COBRA premium as part of your separation. Gap: our checked sources do not measure how often asking works.

How we checked this: this page is the output of a rigorous research pipeline run with AI tools: every factual sentence rests on a finding checked against the source's own words, and a person approved the page before it went up. How we check our facts. Updated November 12, 2026. This page is general information, not legal, tax or financial advice.