Posted by Joshua R. Goodbaum in Employment Law
Jul 17 2025
Everything You Need to Know About Severance Agreements
When you receive a severance agreement, it’s natural to have questions. These documents often contain complex legal terms and obligations that can feel overwhelming, especially when emotions are already running high.
At Garrison Law, we understand the importance of clarity and confidence when navigating severance agreements. We’ll break down the most frequently asked questions, providing clear guidance to help you make informed decisions about your rights and benefits. Armed with these insights, you’ll be better equipped to fully understand your severance agreement and protect your interests.
13 Common Questions About Severance Agreements
1. Why is the agreement so long?
Severance agreements (or separation agreements) are legally binding contracts. They are typically drafted by the employer’s lawyer for the benefit of the employer, not the employee. The employer’s lawyer doesn’t want to leave anything ambiguous; they want to consider every possible question you (or a court) might have and put the answers right in the contract, to prevent you from arguing later that you didn’t understand something.
Although your severance agreement may seem long, many of its terms are probably entirely standard, and your employer probably uses the same agreement — or a very similar one — for every employee it terminates.
By the same token, however, severance agreements often contain provisions that are detrimental to you as an employee and could even impede your ability to find work in the future or to obtain all of the benefits to which you are entitled. The best course if you receive a severance agreement is to speak with an experienced employment lawyer, who can either guide you behind the scenes or directly negotiate with your employer to improve the severance package or modify or remove harmful provisions.
2. What about health insurance?
If you received health insurance from your employer, then you have a right under federal law to continue your employer-provided health insurance, albeit at your expense. The Consolidated Omnibus Budget Reconciliation Act of 1985 (frequently called COBRA) provides that, if an employer wants to deduct its health insurance costs, it must allow its employees and their immediate family members who have been covered under its health care plan to keep their coverage after employment ends.
However, the employee must pay the full cost of the insurance at the same rate the employer pays to its insurance carrier, plus a two percent administrative fee. In most cases, COBRA eligibility lasts for 18 months following termination of employment. You have a right to COBRA whether or not the agreement says so.
Some agreements provide for a period of time during which the employer will pay the cost of your COBRA benefits, meaning that it will continue to provide health insurance as if you were still employed by paying its portion of your insurance. This is frequently a subject of negotiations.
3. What about the money I am already owed?
The agreement probably includes a clause saying that you agree that you have been paid all wages, commissions, or other compensation that you were owed at the time of your termination.
If that isn’t true — because, for example, you are still owed commissions from sales you already made — then you should not agree that it is. The best practice is to state explicitly in the agreement exactly how much money you are owed, the terms of payment (when and how it will be paid), and what happens if the terms of payment are not satisfied.
4. Are the severance benefits taxable?
Our firm does not provide tax advice, so you should consult with a tax lawyer or accountant about the tax implications of your specific severance agreement.
As Benjamin Franklin famously said, though, “in this world nothing can be said to be certain, except death and taxes,” and severance agreements are generally no exception. Most severance benefits are taxed as wages, meaning withholding will be taken out of the severance amount in the same way as the money you received in your regular paycheck during your employment. However, there are exceptions to this general rule, including concerning stock options and claims for non-economic (or emotional distress) damages.
You may have heard of friends who received settlements of legal claims — such as from a car accident — that were not taxed. That is because federal tax law treats settlement income differently depending on the nature of the underlying legal claims. Payments from cases involving physical injuries generally are not taxable, whereas payments from cases involving wrongful terminations generally are.
You may experience physical or emotional pain (such as an ulcer) as a direct result of your termination. That pain alone, though, likely does not render your payment exempt from taxation.
5. The agreement says I can’t work there again. Is that legal?
It is very common for employers to request this provision — often called a “no rehire” or “never darken my door” clause — and there can be a good reason for the request. Your employer is giving you a severance agreement because it wants finality. In other words, it’s paying you money so it doesn’t have to worry about you again.
Still, the employer is nervous that you might apply to be rehired, have your application denied, and then sue for retaliation, and it (naturally) wants to avoid that. One way to avoid a future lawsuit would be for you to release all legal claims you might have against the employer in the future. However, you actually cannot do that, because agreements to waive future claims are unenforceable as a matter of public policy.
So the employer takes a different route. It has you agree that you won’t apply again and that any application you do submit can be denied because of “irreconcilable differences.”
As to legality, that depends on who you ask. The U.S. Equal Employment Opportunity Commission disfavors these clauses and often refuses to permit them in settlement agreements that it reviews. Courts, however, seem to have a different view, with numerous federal courts around the country enforcing these provisions. (The notable exception is in California, where the courts have concluded that these provisions violate state law.)
Whether to agree to a “no rehire” clause depends on the exact language of the clause, as well as your specific professional circumstances. Some “no rehire” clauses can function essentially as restrictive covenants, effectively preventing you from earning a living in your chosen field. Other clauses might be narrow enough to be acceptable to you.
6. What about the other promises that were made to me?
Be very careful here. The agreement almost certainly contains a provision that states, in substance, that you are not relying on any other representations that have been made to you outside this written agreement and that you understand that the entire agreement is expressed in writing in this document.
(It also may say that it supersedes any other written agreements.) This provision has several names, including “merger clause,” “integration clause,” and “total agreement clause.” Regardless of the name, the result is that any other promise or representation that your employer made to you — but which is not included in the written agreement — becomes effectively null and void.
Be aware that the agreement may make specific reference to prior agreements (such as a non-competition agreement or an invention/patent ownership agreement) that you signed before or during your employment. These agreements may specifically “survive” the termination of your employment, meaning they remain in effect even after your employment ends.
7. Can the employer limit my time to sign?
For the most part, yes. Separation agreements are contracts like any other, so the terms of the offer will control. If the party making the offer (here, the employer) says, for example, that the offer expires after seven days, then the offer will expire after seven days. Of course, if the employer wants to hold the offer open longer than it initially says, then it can. From your perspective, you may want to ask your employer for more time to consider the offer, especially if you are waiting to speak with an employment lawyer.
There is a caveat, though. A federal law called the Older Workers Benefit Protection Act (or OWBPA) requires employers to follow certain rules in order to obtain a valid release of legal claims under the federal Age Discrimination in Employment Act (or ADEA), which applies to workers who are 40 or older.
The rules are extensive, but among the most important is that, in order for the release to be effective, the employee must have been given at least 21 days — or 45 days, under some circumstances — to consider it. The employee must also be given seven days after she signs the document in which to revoke or rescind her acceptance, usually by writing directly to the employer.
8. What if the employer doesn’t pay?
This is a good question to ask if you were working for a small business or one that you know is in financial trouble, or if you are scheduled to receive severance payments over time (often called “structured” payments). There are some constructive steps you can take ahead of time to protect yourself against the risk of non-payment, such as including enforcement terms in the separation agreement.
The employer, for example, could be required to pay you interest if it does not make its payments on time. Or you may be able to obtain a personal guarantee from the employer — that is, to have the owner of the business sign the agreement in her capacity. That way, if the employer defaults on the severance payment or goes bankrupt, you can seek payment from the individual.
9. The employer tells me I “need to sign.” Is that right?
No. Whether to sign is your decision. No one can make you sign a contract. (In fact, if you sign a contract because someone “made” you, then the agreement might be a product of what lawyers call “duress” and therefore unenforceable.) However, you should be aware that if you do not sign the agreement, you likely will not receive some or all of the benefits described in the agreement.
10. When should I refuse to sign a severance agreement?
That decision is yours to make, based on a variety of factors too numerous and complex to list here. Every situation is different. However, you absolutely should not sign the agreement without first understanding all of its terms.
Severance agreements are detailed and complicated, and lawyers who do not regularly review and negotiate them may be unfamiliar with all of the moving pieces. That is why it is often helpful to speak with an experienced employment lawyer to get a full understanding of the proposed deal.
If you think you might have a legal claim related to your termination (or any other aspect of your employment) — such as a claim of discrimination or retaliation, or for unpaid wages — then you should seek legal assistance before deciding whether or not to sign the proposed severance agreement. It may be possible to negotiate a better separation package, or it might make sense to take your case to court. An experienced employment lawyer can help you consider your options and decide how to move forward.
11. How long do I have to sign a severance agreement?
If the severance agreement includes a waiver of age discrimination claims under the federal Age Discrimination in Employment Act (or ADEA), which applies to workers who are age 40 or older, then the employee must be given at least 21 days to review the agreement and decide whether to sign. If the severance agreement is part of a group layoff or reduction in force (RIF), then the ADEA requires the employer to give the employee at least 45 days to consider the severance agreement. If you are under 40, there is no federal or Connecticut law that requires an employer to provide a reasonable amount of time for an employee to make a decision about a severance agreement; in other words, it is legal for an employer to say that the employee has to sign immediately or lose the offer.
12. What is the seven-day revocation period?
A revocation period in a severance agreement is a set time during which an employee can change their mind after signing it. The revocation period is designed to protect employees from being pressured into signing a severance agreement and to ensure they have time to reconsider their decision after signing.
For employees who are 40 years old or older, the Older Workers Benefit Protection Act (or OWBPA) requires a 7-day revocation period to cancel severance agreements that include a release of claims for age discrimination under the federal ADEA. The revocation period begins immediately after the employee signs the severance agreement.
13. Can an employer revoke an offer in a severance agreement?
An employer can revoke – or withdraw – a severance agreement the employer has offered, but only under certain circumstances. Whether an employer can legally revoke the agreement depends on the stage of the process, the terms of the agreement, and whether the agreement has been fully executed (signed by both parties).
If the employee is age 40 or older, then in order to obtain a release of legal claims for age discrimination under the federal Age Discrimination in Employment Act (or ADEA), the employer must provide the employee with at least 21 days to review the agreement and decide whether to sign. During that time, the employer may not revoke the offer. After the 21 days expire, the employer may revoke the offer. Likewise, if the employee makes an alternative proposal (e.g., for a higher amount of severance), that counter-proposal serves legally to reject the employer’s original offer; at that point, the employer can keep its original offer open but is not legally required to do so.
If the employee is younger than 40 or the agreement does not include a release of ADEA claims, then the employer can revoke the offer at any point before the employee accepts the offer. Once the employee accepts the employer’s offer, a contract is formed, and neither party is free to withdraw from the contract unless the contract says so. If the employer attempts to back out of a contract, the employee may have grounds for a legal claim, such as breach of contract.
Learn More About Severance Agreements
If you’re navigating the complexities of a severance agreement, having legal guidance from experienced employment lawyers can make all the difference. At Garrison Law, we’re dedicated to helping employees understand their rights and negotiate agreements that protect their interests. If you have further questions or need personalized advice, don’t hesitate to contact us. Our team is here to provide the clarity and support you need to move forward with confidence.
Posted by Joshua R. Goodbaum in Employment Law
Tagged Joshua Goodbaum, Severance Agreements
