Severance Agreement Review: What to Check Before You Sign (Free AI Checklist)

You just got the call. Maybe your manager pulled you into a conference room. Maybe it was a Zoom with an HR rep you’ve never met. Either way, the conversation ended with a stack of papers — or a DocuSign link — and a request to sign your severance agreement quickly.

Many people ask for time to review before signing, and workers 40 and older get at least 21 days by law.

A severance agreement is not a parting gift. It’s a legal contract designed primarily to protect your employer. The money and benefits they’re offering? That’s the price they’re willing to pay for your signature on a release of claims waiver that prevents you from suing them. Understanding what you’re giving up is just as important as knowing what you’re getting.

This guide walks you through every clause you need to check, shows you how to calculate whether your package is fair, and describes negotiation approaches people commonly use. You can also run your agreement through Justee’s free AI contract review tool to get a clause-by-clause risk analysis in minutes, with no signup required. If you want a broader overview of how AI contract review works, start with our complete AI contract review guide. You can also use our free document comparison tool to compare your original offer against any revised versions.

What Is a Severance Agreement?

A severance agreement is a legally binding contract between an employer and a departing employee. The employer offers a package of compensation and benefits. In return, you agree to waive certain legal rights, most importantly your right to sue the company.

Think of it as a transaction: they’re buying your claims, your silence, and your cooperation. The question is whether they’re paying a fair price.

A typical severance package may include:

• Monetary payout — Usually a lump sum or salary continuation, often calculated as 1–2 weeks of pay per year of service
• COBRA health insurance continuation: Employer-paid premiums matter because under COBRA you can be charged the full premium plus a 2% administrative fee
• Stock and equity vesting acceleration — Allowing unvested options or RSUs to vest on departure
• Outplacement services: Career coaching and job search support
• Reference letter or termination characterization — How the company will describe your departure to future employers

In exchange, the agreement typically requires you to:

• Sign a release of claims waiver (the employer’s primary goal)
• Agree to confidentiality about the agreement terms
• Accept non-disparagement restrictions on what you can say about the company
• Comply with non-compete or non-solicitation clauses
• Cooperate with the company on any future legal matters

The U.S. Department of Labor confirms that there is no federal requirement for employers to provide severance pay. This means the package is discretionary, and many of its terms can be negotiated. Your employer is offering severance because they want something from you, not because they’re obligated to. That gives you more leverage than you think.

The 10 Clauses You Must Check Before Signing

Every severance agreement is different, but the same 10 clauses come up again and again. Here are the provisions you need to scrutinize, and what to look for in each. You can upload your agreement to Justee's free AI review tool to get an automated, clause-by-clause analysis in minutes.

1. Severance Pay Amount and Structure

The baseline for severance pay is 1–2 weeks of salary per year of service. Executives and senior managers typically receive more — sometimes 6–12 months of base salary plus bonuses.

Red flags:

• Pay that’s significantly below 1 week per year of service
• Inclusion of benefits you’re already owed (accrued vacation, final paycheck) as part of the “severance” — these are not severance, they’re your earned compensation
• Vague payment timing with no specific dates
• Clawback provisions that let the employer reclaim payments

2. Release of Claims

This is the clause your employer cares about most. It’s the entire reason they’re offering you money. By signing, you give up the right to sue the company for wrongful termination, discrimination, harassment, wage violations, and more.

Red flags:

• Release that covers claims you don’t even know about yet
• No carve-out for EEOC charges, workers’ compensation, or unemployment benefits
• Release that extends to unnamed affiliates, subsidiaries, or future acquirers

Know your rights: Under ADEA and OWBPA, if you’re 40 or older, the employer must give you at least 21 days to review (45 days for group layoffs) and a 7-day revocation period after signing. A release that doesn’t include these protections may be unenforceable.

3. Non-Disparagement Clause

This is where employers often overreach. A non-disparagement clause restricts what you can say about the company, your managers, and your experience working there.

Red flags:

• One-sided restriction — you can’t say anything negative, but the company can
• No definition of what constitutes “disparagement”
• Covers social media posts, Glassdoor reviews, and private conversations
• No exception for truthful statements or legally protected activity

The National Labor Relations Board has found that overbroad non-disparagement clauses can violate employees’ rights under the National Labor Relations Act.

4. Confidentiality Clause

Separate from non-disparagement, a confidentiality clause restricts you from disclosing the terms of the severance agreement itself — how much you received, what you agreed to, and sometimes even the fact that an agreement exists.

Red flags:

• Penalties for discussing the agreement with your spouse or tax advisor
• Liquidated damages of $1,000–$5,000 per violation, or clauses demanding full repayment of severance for any breach
• No exception for disclosures required by law (court orders, tax filings)

5. Non-Compete Clause

Some employers use severance agreements to introduce or extend non-compete restrictions. This can prevent you from working in your industry for months or even years after departure.

Red flags:

• Non-compete that wasn’t in your original employment agreement
• Geographic scope broader than your actual work area
• Duration longer than 6–12 months
• No additional compensation specifically for the non-compete period

Check your state’s laws carefully. The FTC’s 2024 non-compete rule was set aside by a federal court, so state law sets the limits, and a few states, including California, ban most non-competes. A non-compete in your severance may not be enforceable.

6. Non-Solicitation Clause

Different from a non-compete, this prevents you from recruiting your former coworkers or reaching out to the company’s clients after you leave.

Red flags:

• Covers customers you brought to the company
• Applies to employees who leave the company on their own
• Duration exceeds 12 months
• No clear definition of “solicitation”

7. Cooperation Clause

A cooperation clause requires you to assist the company with ongoing or future legal matters, investigations, or regulatory inquiries after your departure.

Red flags:

• Open-ended time commitment with no limit
• No guarantee of additional compensation for your time
• No reimbursement for travel or legal expenses
• Obligation to make yourself “reasonably available” without defining what’s reasonable

8. Termination Characterization

How your departure is described matters more than you might think. This clause controls the company’s official narrative about why you left — and what they tell future employers who call for a reference.

Common requests:

• A neutral characterization (“position eliminated” vs. “terminated for cause”)
• A pre-approved reference letter
• Restriction on who within the company can provide references
• Agreement on what will be said if contacted by recruiters

9. Impact on Unemployment Benefits

Signing a severance agreement can affect your eligibility for unemployment benefits. Some agreements include language that could be interpreted as a voluntary resignation, which may disqualify you from unemployment insurance in your state.

Red flags:

• Language suggesting you are “voluntarily resigning”
• Agreement not to file for unemployment
• Severance payments structured to offset unemployment benefits dollar-for-dollar

10. Governing Law and Dispute Resolution

This clause determines which state’s laws apply to the agreement and how disputes are resolved. It can significantly affect your rights.

Red flags:

• Mandatory arbitration with employer-chosen arbitrator
• Governing law set to a state that’s unfavorable to employees
• Waiver of right to jury trial
• You pay the employer’s legal fees if you lose a dispute

For more on how AI tools flag these issues, see our guide to faster, clearer contract reviews with AI.

How to Calculate If Your Severance Is Fair

Justee Compliance Review rates each finding in a severance agreement review Critical, Moderate or Note and explains why, so you can see what you are signing. Before you can negotiate, you also need a baseline for the money. Is the offer generous, typical, or low? Here's how to run the math.

Step 1: Calculate the Baseline Cash Value

The most common formula is 1–2 weeks of base salary per year of service. If you earned $100,000 annually and worked at the company for 5 years, a standard severance would be:

• Low end: 5 weeks × $1,923/week = $9,615
• High end: 10 weeks × $1,923/week = $19,230

If your offer falls below the low end, you have a reason to ask for more. If it’s at the high end, the cash component is reasonable — but that doesn’t mean the overall package is fair.

Step 2: Value the Non-Cash Benefits

Cash is only part of the picture. Add up the value of everything else:

• COBRA coverage: Check what your current plan costs. KFF’s employer health benefits survey puts average premiums for single coverage in the hundreds of dollars a month, so six months of employer-paid COBRA can be worth thousands.
• Family COBRA: Family coverage costs much more, so six months of employer-paid family COBRA can be worth well over $10,000.
• Outplacement services: Career coaching and job search support can be valuable to you, and employers that already contract with outplacement firms may add you at little extra cost. It is worth asking for.
• Equity acceleration: Calculate the value of unvested stock options or RSUs at current market price. If you have $50,000 in unvested equity, accelerated vesting could be worth more than the cash severance itself.

Step 3: Factor In What You’re Giving Up

Now calculate the value of what the employer is asking you to sign away:

• Non-compete: If you’re restricted from working in your field for 12 months, that’s 12 months of lost earnings. A non-compete on a $120,000 salary effectively costs you up to $120,000.
• Legal claims: If you have potential discrimination, harassment, or wrongful termination claims, the value of releasing those claims could be significant. Consult an employment attorney if you believe you have viable claims.
• Non-disparagement: The inability to speak honestly about your experience has real value, especially in industries where reputation and networking matter.

Step 4: Compare Total Value to Total Cost

A fair severance package gives you more in value than what you’re giving up. If the company is asking you to sign a broad release of claims, accept a 12-month non-compete, and stay silent about your experience for 4 weeks of pay, the cash may not reflect what you are giving up.

Run your agreement through Justee’s AI contract review to get a clause-by-clause risk analysis in minutes, then compare your offer against the common terms above. See our pricing page for details on free and premium review options.

5 Negotiation Approaches People Commonly Use

Understanding your agreement is one thing; changing it is another. Here are five approaches people commonly use.

Justee's analysis flags restrictive covenants beyond the non-compete, such as non-solicitation and cooperation clauses, and points to the state law that may limit them, so your severance agreement review covers more than the headline terms.

1. Using the Review Period

If you’re over 40, federal law gives you at least 21 days to review your agreement (45 days for group layoffs). Many people use the full period. Employers sometimes set artificial “deadlines” that are shorter than the legal minimum — these are negotiation tactics, not legal requirements.

Even if you’re under 40, you can request more time. An employer who refuses a reasonable review period may not want the fine print read closely.

2. Starting With Low-Cost, High-Value Items

Some benefits cost the employer little but can be worth a lot to you. Many people start with these:

• Outplacement services: Many employers already contract with outplacement firms, so adding you may cost them little, while the support can be valuable to you.
• Extended COBRA: Asking for 3–6 months of employer-paid health insurance is easier to get than a higher cash payout.
• Positive reference: A pre-approved reference letter costs the company nothing but can be worth more to your career than extra severance pay.
• Extended equity exercise window: Extending your stock option exercise window from 90 days to 12 months gives you time without costing the company cash.

3. Treating the Non-Compete Separately

If a severance agreement includes a non-compete clause, many people treat it as a separate negotiation. A non-compete restricts your ability to earn a living — that restriction has a quantifiable cost.

Common requests include:

• Additional payment (a “non-compete buyout”) for each month you’re restricted
• Narrower scope: specific competitors only, not the entire industry
• Shorter duration: 3–6 months instead of 12–24
• Geographic limitation matching your actual work territory
• Complete removal of the non-compete in exchange for a lower cash payout

For executives, a non-compete buyout can be a significant part of a severance negotiation.

4. Asking for Mutual Non-Disparagement

If the company wants you to stay quiet about your experience, it is common to ask it to agree to the same. Common requests include:

• Mutual non-disparagement (applies to the company and its managers, not just you)
• A clear definition of what constitutes “disparagement”
• An exception for truthful statements made in response to legal inquiries
• No restriction on protected concerted activity under the National Labor Relations Act

5. Getting Everything in Writing

Verbal promises made during the separation meeting are worthless if they’re not in the written agreement. If HR says “we’ll give you a great reference,” that needs to be a specific clause in the agreement. If your manager says “the non-compete won’t be enforced,” that’s meaningless without a written waiver.

Before signing, use Justee Document Comparison to compare the original agreement against the revised version. It shows any last-minute changes made during negotiations.

How AI Can Review Your Severance Agreement in Minutes

Justee's free severance agreement review typically analyzes each clause against employment law standards in 1 to 6 minutes, turning a 10-page legal document into a clear risk report. Reading a severance agreement is intimidating, especially when you're dealing with the stress and emotional weight of a job loss. You shouldn't have to parse dense legal language while processing the fact that your career just changed direction.

AI severance agreement review tools solve this by doing the heavy lifting for you. Here's what happens when you upload your severance agreement to Justee:

What AI Flags

• Overbroad release of claims: Flags waivers that go beyond standard scope or lack required ADEA/OWBPA protections
• Severance pay terms: Explains the amount, timing and structure, which you can compare with the common rule of thumb of 1 to 2 weeks of pay per year of service
• Non-compete red flags: Identifies restrictions that may be unenforceable under your state’s laws (the FTC’s 2024 non-compete rule was set aside in court, so state law controls)
• One-sided non-disparagement: Detects gag clauses that restrict only you, not the employer
• Missing benefits: Identifies standard severance components (COBRA, outplacement, equity acceleration) absent from your agreement
• Punitive liquidated damages: Flags penalty clauses requiring full repayment of severance for minor violations
• Cooperation clause overreach: Detects open-ended cooperation requirements with no compensation or time limits

Justee's severance agreement review shows each flagged clause, such as an overbroad non-disparagement clause or a missing COBRA term, next to the law that applies, so you know what to raise before you sign.

Where a Lawyer Fits

AI review is not a substitute for the advice of an attorney. It flags the issues and explains them; for advice on your situation, talk to an employment lawyer, especially with executive equity, a possible discrimination or retaliation claim, a large package, or anything you do not understand.

Think of it this way: AI handles the first read. If it flags significant concerns, such as an unusually broad release, an aggressive non-compete, or missing ADEA protections, you know which issues to raise, with your employer or with a lawyer.

For a comparison of free AI contract review tools, see our guide.

When to Escalate to a Lawyer

Justee's free severance agreement review flags the issues and explains them, but it is not a substitute for the advice of an attorney; for advice on any severance agreement, talk to an employment lawyer who represents employees, not employers. Many people make sure to do so in the cases below.

You Should Consult an Attorney If:

• You believe you were terminated illegally — because of your race, gender, age, disability, pregnancy, whistleblowing, or other protected characteristic
• You have viable legal claims — unpaid wages, harassment, hostile work environment, or retaliation that the severance is designed to extinguish
• The severance is substantial: a large package is worth getting advice on before you sign
• You’re a senior executive — with complex equity, deferred compensation, or change-of-control provisions
• The non-compete is aggressive — restricting you from your entire industry for 12+ months
• You’re in a group layoff — and want to verify the company complied with the WARN Act requirements for advance notice
• You don’t understand a clause — even after AI review, if something is unclear, a lawyer can explain it in the context of your specific situation

How to Find the Right Attorney

Look for an attorney who:

• Specializes in employee-side employment law (not employer defense)
• Offers a free initial consultation (many employment lawyers do)
• Has experience with severance negotiations in your industry
• Can work within your review timeline

Use the ABA Lawyer Referral Directory or your state bar association’s referral service. Some employee-side attorneys offer a free initial consultation, so ask when you call.

A practical approach: run your agreement through Justee’s free AI review first, then bring the flagged issues to your attorney so the conversation starts with specific questions. Learn more about this approach in our complete AI contract review guide.

Max Zaykov is the founder of Justee.ai, an AI tool that helps people understand their legal documents.

The information provided is for educational purposes only and does not constitute legal advice. Consult a qualified attorney for advice specific to your situation.