Severance and Releases: What a Defensible Agreement Needs

Consideration: pay for something they don’t already have

• Confirm the consideration is new. The employee must receive something they are not already owed. Earned wages, accrued PTO where state law requires payout, vested benefits, and contractual commissions are debts, not consideration — severance has to sit on top of them.
• Recite the consideration plainly. State the amount, the timing, and that it is contingent on the release and on continued compliance. A release supported by “adequate consideration” with no number invites a later argument that nothing changed hands.
• Provide fresh consideration for any additional or later release. A second release at the end of a consulting tail, or a supplemental release of claims arising after the first signing, generally needs its own new consideration. Re-signing the same paper for the same money waives little.

Scope: define what is released — and what cannot be

• Describe the released claims with specificity. A general release plus an illustrative list of the major statutes (Title VII, ADA, ADEA, FMLA, and state fair-employment and wage laws) reads as knowing and voluntary. “All claims of any kind” standing alone is weaker than it looks.
• Carve out what generally cannot be waived. Several categories survive almost any release: unemployment eligibility, vested retirement and ERISA-plan benefits, the right to file a charge with or assist an agency, and, in many states, future claims that have not yet arisen. Drafting around them is cleaner than purporting to release them and being told the release overreached.
• Handle wage and FLSA claims with care. Private releases of FLSA claims for unpaid minimum wage or overtime are often unenforceable without DOL or court supervision — treatment varies by circuit and state. If a genuine wage dispute exists, resolve it on its own track rather than burying it in a global release.
• Address workers’ compensation separately. Many states bar or specially regulate the release of comp claims; some require a separate agreement and agency or board approval. Confirm the rule in the governing state before assuming a global release reaches an open or potential claim.
• Don’t purport to release future claims you can’t. A release reaches claims existing as of signing. Claims arising afterward — and certain non-waivable rights — generally cannot be signed away in advance. Tie the release to a stated date.

Employees 40 and older: the OWBPA formalities

An age-claim waiver is effective only if it is knowing and voluntary under the ADEA, as amended by the OWBPA. The requirements are formal, and a release that misses them does not waive the age claim — even where it still waives everything else.

• Reference the ADEA expressly and advise consulting counsel. The waiver must specifically name age-discrimination rights and tell the employee, in writing, to consult an attorney before signing.
• Give the full consideration period — and don’t reset it by accident. The statutory minimums are 21 days for an individual separation and 45 days for an exit-incentive or other termination program offered to a group. A material change to the offer can restart the clock, so finalize terms before the period runs.
• Provide the decisional-unit disclosures in group programs. The 45-day offer must include the eligibility factors, the time limits, and the job titles and ages of all individuals eligible or selected for the program, and the ages of those in the same job classification or unit who were not eligible or not selected, within the decisional unit. Get the unit boundaries right — they are the same boundaries that drive your selection defense.
• Preserve the seven-day revocation. The employee must have seven days after signing to revoke, and the agreement is not effective or enforceable until that window closes. Time any payment to follow it.

Confidentiality and non-disparagement: the NLRB limits

• Don’t draft terms that chill protected activity. Under McLaren Macomb, confidentiality and non-disparagement clauses broad enough to deter employees from exercising Section 7 rights — discussing wages and working conditions, or supporting co-workers — can be unlawful on their face. The analysis turns on the language, not on whether anyone is ever sued under it. The reach of the decision is still developing, so watch the current state of Board law.
• Build in the agency carve-outs. Preserve, explicitly, the right to file charges with and cooperate with the EEOC, NLRB, SEC, OSHA, and comparable state agencies, and to respond truthfully to a subpoena or investigation. Provisions that impede protected whistleblower or agency-reporting communications are independently unlawful and cannot be conditioned away.
• Narrow confidentiality to legitimate interests. Trade secrets, the settlement amount, and genuinely proprietary information are defensible targets. A blanket bar on ever mentioning the employment or the dispute is the kind of overreach that now puts the surrounding terms at risk.
• Use a severability clause — and don’t rely on it. Severability helps if one term falls, but a court or the Board may read an overbroad clause as poisoning the release. The better protection is not needing severability.

Tax, deferred pay, and the practical terms

• Run installment and deferred payments through Section 409A. Severance paid over time, or tied to a later date or event, can implicate 409A and its penalties unless it fits an exemption (the short-term deferral or separation-pay rules). Confirm the structure and the payment-timing language before signing — this is a tax problem the employee pays for, but the employer drafted.
• Settle the operational terms. Return of property and data, a defined references practice, and a cooperation clause for future litigation or investigations (with expense reimbursement). On no-rehire: it is common, but several states now restrict or bar no-rehire terms in settlement of discrimination or harassment claims — confirm the rule in the governing state.
• Reaffirm surviving restrictive covenants. If the employee is under enforceable non-compete, non-solicit, or confidentiality obligations, restate them — don’t assume the separation agreement carries them silently. Conditioning severance on continued compliance also gives the agreement teeth without litigation. Confirm the covenants are themselves still enforceable under current, fast-changing state law.