Severance Agreement Red Flags: What to Check Before You Sign

You just got laid off. You're in shock. And HR hands you a severance agreement with a deadline — sign within 21 days (or 45 if you're over 40) and you get the package. Don't sign, and you walk away with nothing. The pressure feels deliberate because it is. Severance agreements are legal documents drafted by the company's attorneys to protect the company, not you. Every clause serves their interests. Understanding which clauses cost you the most is the difference between accepting a fair deal and signing away rights you didn't know you had.

Most people sign without negotiating because the agreement looks final. It's not. Almost every severance offer is the opening position, not the final one.

The Non-Compete Buried in Severance

Some severance agreements include non-compete clauses that restrict where you can work after leaving. If you sign a 12-month non-compete as part of your severance, you've just limited your job search in exchange for a few months of pay. In many states, non-competes signed at termination (not at hiring) are unenforceable. In states like California, they're almost entirely unenforceable regardless.

Before signing, identify whether the agreement contains a non-compete, non-solicitation, or non-disparagement clause. Each restricts different behavior. Non-competes limit where you work. Non-solicitation limits which clients or coworkers you can contact. Non-disparagement limits what you can say about the company publicly. Know what you're agreeing to.

The Release of Claims: What You're Giving Up

Every severance agreement includes a release of claims — you agree not to sue the company in exchange for the severance payment. This is standard. What's not always obvious is the scope of the release. Some releases are narrow (you release claims related to your termination). Some are broad (you release all claims, known and unknown, from the beginning of your employment through the signing date).

A broad release means you're waiving your right to pursue wage theft, discrimination, harassment, or any other claim from your entire tenure. If you have potential claims — unpaid overtime, a hostile work environment, retaliation for whistleblowing — the severance payment should reflect the value of what you're releasing. If the company is offering you two weeks of pay to release five years of potential claims, the math doesn't work in your favor.

The Cooperation Clause

Many agreements require you to 'cooperate' with the company after departure — participating in lawsuits, providing information, answering questions. This can mean unpaid time spent helping your former employer with legal matters for months or years. Look for whether cooperation is bounded (limited to specific matters, compensated for your time) or open-ended.

Also check: does the agreement require you to return all company property and information within a specific timeframe? Does it restrict your use of knowledge and skills you developed during employment? Some agreements conflate trade secrets (legitimately protectable) with general professional knowledge (not protectable).

Before You Sign

You almost certainly have more time than the agreement implies. If you're over 40, the Older Workers Benefit Protection Act gives you 21 days to consider (45 days in group layoffs) and 7 days to revoke after signing. These timelines are legal minimums — you can ask for more time.

You can negotiate. Common negotiation points: higher payout, extended health insurance coverage (COBRA subsidy), removal or narrowing of non-compete clauses, a neutral reference agreement, and outplacement services. The company has already decided to pay you something; the question is how much and on what terms.

Run the agreement through a structural analysis before your review period expires. The Shield identifies the clauses that cost you the most and the language patterns that create obligations you may not have noticed.

Analyze your severance agreement: https://misread.io/shield/negotiation