Severance Agreement Red Flags: Six Clauses to Check Before You Sign
This page is general information, not legal advice.
A severance agreement usually trades a payment for your promise not to sue, plus a set of other promises about what you can say and do after you leave. Your employer's lawyers write it, and the money is often the only part that is clearly in your favor. This page covers six clauses that often move risk onto the departing employee. For each one you get an illustrative example, why it matters, and wording you can propose. Severance terms can often be negotiated, and the rules on what an employer can ask you to give up vary a lot by jurisdiction. Some places set minimum review or cancellation periods for some employees, and some claims can't be waived at all.
The example clauses below are illustrative. They are not taken from any real company's agreement.
1. A release that covers every claim, known or unknown
A typical clause might read: "Employee releases Company and its affiliates, officers, employees and agents from any and all claims, known or unknown, arising at any time through the date Employee signs this Agreement."
Why it works against you
This is the core of most severance deals, so the question is how broad it is. "Known or unknown" can cover claims you haven't found yet, such as unpaid commissions, expense reimbursements or vested benefits. It may also cover anything that happens between your last day and the day you sign. The release often runs only one way, so the company keeps its right to bring claims against you. Which claims the law lets you release depends on where you work.
What to ask for instead
Sample wording to propose: "This release does not apply to vested benefits, unpaid wages or commissions earned before the Separation Date, expense reimbursements, indemnification rights, or claims that cannot be waived by law. Company releases Employee from all claims known to Company as of the date it signs this Agreement."
2. A short deadline to sign, with no time to cancel
A typical clause might read: "This offer expires if Employee does not return a signed copy within three (3) days of receipt. This Agreement is effective and irrevocable upon signature."
Why it works against you
A tight deadline pushes you to sign before you understand what you're giving up or have had anyone review it. Without a cancellation window, you can't change your mind once you've signed. Depending on your age, your location and the size of the layoff, the law where you work may require a longer review period or a cancellation right. Ask a qualified lawyer what applies to you.
What to ask for instead
Sample wording to propose: "Employee will have a reasonable period, and no less than any period required by applicable law, to consider this Agreement and is encouraged to consult a lawyer. Employee may revoke this Agreement in writing within the revocation period required by law, or 7 days after signing if none applies."
3. One-sided non-disparagement and confidentiality
A typical clause might read: "Employee shall not make any negative statement about Company, its products or personnel, and shall keep the existence and terms of this Agreement strictly confidential."
Why it works against you
"Any negative statement" has no time limit and can reach honest reviews, job interviews and conversations with friends. The company usually promises nothing in return, so managers stay free to talk about you. Strict confidentiality may also clash with your right to talk to your spouse, tax adviser, lawyer or a government agency. Many places limit how far these clauses can go. See confidentiality survival clauses explained.
What to ask for instead
Sample wording to propose: "The parties will not make knowingly false or defamatory statements about each other. Company will instruct the named executives not to disparage Employee. Nothing here prevents Employee from speaking with family, legal or financial advisers, or any government agency, or from giving truthful testimony."
4. Clawback of severance for any alleged breach
A typical clause might read: "If Company determines that Employee has breached any provision of this Agreement, Employee shall immediately repay all severance amounts received, and the release shall remain in full force."
Why it works against you
The company decides whether you broke the agreement, and one small slip can cost you the whole payment while you still lose your right to sue. That is a harsh penalty with no process attached. See liquidated damages clauses explained.
What to ask for instead
Sample wording to propose: "Repayment applies only if a court or arbitrator finds a material breach that Employee did not cure within 15 days of written notice. Any repayment is limited to the actual damages proven."
5. A new non-compete or non-solicit added at the exit
A typical clause might read: "For eighteen (18) months following the Separation Date, Employee shall not work for or advise any competitor of Company or solicit any Company employee or customer."
Why it works against you
Severance agreements sometimes add or extend restrictions that were never in your original employment contract, right when you need to find new work. A broad restriction can keep you out of your own field. Whether it can be enforced varies a lot by jurisdiction. See non-compete clauses explained.
What to ask for instead
Sample wording to propose: "Employee's existing post-employment obligations, if any, remain unchanged. This Agreement does not create any new non-competition or non-solicitation restriction."
6. Installment payments the company can stop
A typical clause might read: "Severance will be paid in installments over twelve (12) months, subject to Employee's continued compliance with this Agreement as determined by Company."
Why it works against you
You give up your claims on day one, but the money arrives slowly and can stop based on the company's own view of your conduct. If the company is sold, restructured or runs short of cash, you may be left chasing payments after you've already released it.
What to ask for instead
Sample wording to propose: "Company will pay the severance in a lump sum within 15 days after the release becomes effective. Payment may be withheld only as provided in Section [X]."
Also worth a look
Look for clauses that send disputes to private arbitration (see mandatory arbitration clauses explained) or choose a far-away forum (see governing law and jurisdiction clauses explained). Also check no-rehire promises, open-ended duties to help with future lawsuits, and how the deal affects your health coverage, equity vesting, references and unemployment benefits. If you're also weighing a new role, see job offer red flags.
Scan your own agreement free
Every severance package is different, and one broad word can change what you give up. Paste your severance agreement into the ScanMyTerms employment contract review. In about a minute it flags clauses that work against you, with the exact wording and what to ask for instead. The free preview shows the risk count and the first two findings, and the full report is a one-time $5 per document.
This page is general information, not legal advice. Severance rules vary by jurisdiction, so for decisions about a specific agreement, talk to a qualified employment lawyer where you live.
Sources
- All clause examples on this page are illustrative and written for this guide. They are not quoted from any real company's agreement.