Do I have to offer severance to a terminated employee?

Generally no — the US has no federal law requiring severance for ordinary terminations. Severance is offered as consideration for the release of claims. If you want a release, you have to pay something the employee isn't already entitled to. Contracts, policies, or specific layoff laws may create exceptions.

How much severance is standard?

There's no legal minimum. Common practice: 1 to 4 weeks of pay per year of service for non-executives, with caps. Executives often receive 6 to 24 months. The right number balances what's needed to secure the release against company budget and precedent. Severance for older workers (40+) requires extra time for review.

What's OWBPA and when does it apply?

The Older Workers Benefit Protection Act sets requirements for releases of age-discrimination claims by employees 40 or older. The employee must have at least 21 days to consider the agreement (45 in group layoffs), be advised in writing to consult an attorney, and have 7 days to revoke after signing. Non-compliant releases of ADEA claims are unenforceable.

Can a severance agreement include a non-compete?

It can, but enforceability depends on the state. California bans most non-competes regardless of consideration. Other states require the non-compete to be reasonable in scope, duration, and geography. A severance agreement is often the moment to negotiate or trade off restrictive covenants for additional pay.

Can the agreement prevent the employee from filing an EEOC charge?

No. Employees retain the right to file charges with the EEOC, NLRB, OSHA, or other agencies regardless of what the agreement says. The agreement can require the employee to waive monetary recovery from such charges in some circumstances, but it cannot prevent the filing itself. Contract.DIY includes the required carve-outs.

Is the severance payment taxed?

Yes — severance is treated as wages for federal and state tax purposes. The employer withholds income tax, Social Security, and Medicare. Settlement of specific claims (e.g. emotional distress related to a physical injury) may be treated differently, but ordinary severance is wage income.

Severance Agreement

Severance Agreement — Clean Exits, Less Risk

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Severance Agreement by state

State-specific clauses for all 50 US states. Tap your state below to draft a severance agreement that complies with local law.

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What is a Severance Agreement?

A severance agreement is a written contract between an employer and a departing employee that provides a severance payment (and sometimes other benefits) in exchange for the employee's release of legal claims against the company. It's the document used to convert a separation into a clean, final break — with the company protected from lawsuits and the employee compensated for the disruption.

Severance agreements come up in layoffs, performance terminations, mutual separations, and executive exits. They typically include severance pay, accelerated vesting or extended exercise windows, COBRA reimbursement, references, and a general release of claims. Employees age 40+ get extra protections under the federal OWBPA (21 days to consider, 7 days to revoke).

Contract.DIY generates severance agreements that include the right release language for your state, the OWBPA / ADEA protections required for older workers, and the post-employment terms (cooperation, confidentiality, non-disparagement) that protect the company without overreaching. We avoid clauses that the FTC, NLRB, or state law have flagged as unenforceable.

Key clauses included

Severance pay

Amount, timing, and form (lump sum or salary continuation)

Release of claims

Mutual or one-way release covering employment-related claims

Carve-outs from release

Workers' comp, unemployment, vested benefits, whistleblower rights

Continuation of benefits

COBRA reimbursement, extended insurance, equity acceleration

Confidentiality of agreement

Restrictions on disclosing terms (subject to state limits)

Non-disparagement

Mutual non-disparagement and references provisions

Cooperation

Post-employment cooperation with investigations or litigation

Return of property

Return of devices, badges, and confidential materials

Consideration and revocation

OWBPA timing for employees 40+ and revocation rights

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