Reading your severance agreement

Recitals — what to look for in the boilerplate#

Most severance agreements open with a block of “WHEREAS” clauses called recitals. Lawyers often treat them as harmless throat-clearing. They are not. Every word in the recitals frames how a court will read the operative clauses that follow, and two categories of recital language warrant careful attention before you get to the release.

The first is the employer’s reservation of rights. Almost every agreement contains language like: “Nothing in this Agreement shall be construed as an admission of liability or wrongdoing by the Company.” That language is standard and uncontroversial. What you should flag is any recital that characterizes the facts of the separation in a way that advantages the employer in a later proceeding—for example, recitals that characterize your departure as voluntary, attribute the separation to performance, or reference “mutual agreement” when the reality was a unilateral decision by the employer.

The second is the characterization of the separation itself: whether it is recorded as a resignation, a termination without cause, a termination for cause, a mutual separation, or an exit as part of a reduction in force. That characterization is not merely a semantic question. In most states, unemployment insurance eligibility turns on whether you were involuntarily separated from employment without disqualifying misconduct. A severance agreement that memorializes your departure as a voluntary resignation—even when the underlying facts were an involuntary layoff—can be cited by the employer when contesting your UI claim.

Date references in the recitals can also matter for OWBPA timing. The ADEA/OWBPA timing rules discussed below run from the date you are first presented with the agreement (or the date of the layoff notice, whichever triggers the clock under the EEOC’s procedural regulations). If the recitals contain date representations that are inaccurate, they can create ambiguity about when the review period actually started.

Negotiation lever: if the agreement characterizes your departure as a resignation when you were in fact laid off, push to change the recital to “involuntary termination without cause” or “reduction in force.” Employers often agree to this because it costs them nothing operationally while preserving your UI eligibility and removing an inaccurate characterization from a legal document. Insist on accuracy; do not sign a document whose factual predicates you disagree with.

Consideration clause — what you are being paid for#

The consideration clause is the core of the severance agreement. It specifies what the employer will pay you in exchange for your release of claims, and understanding its structure is essential to evaluating whether the deal is worth signing.

The legal concept of consideration requires that each party give something of value. In a severance context, you give up the right to sue (or to pursue certain claims), and the employer pays you something—typically a cash payment, a benefits continuation, or some combination—in exchange. The critical legal rule is that the consideration must be something you are not already entitled to. Amounts already owed to you under statute or contract are not valid consideration for a release; the employer is legally required to pay them regardless of whether you sign anything.

Items that are already owed to you and cannot be conditioned on signing a release include: all earned and unpaid wages through your last day (which must be paid under state wage-payment statutes regardless of any agreement), accrued and unused PTO in states that treat PTO as a wage (California, Colorado, Illinois, and several others), vested 401(k) or other ERISA plan benefits (which are protected under ERISA), and any bonus that has already been definitively earned under your compensation plan. ERISA § 502, codified at 29 U.S.C. § 1132, protects your right to pursue vested plan benefits; an employer may not condition the payment of vested benefits on your signing a severance agreement.

Common items offered as genuine consideration—things you would not receive absent signing—include: additional weeks or months of base salary beyond any contractual severance formula (check your offer letter and employee handbook for any pre-existing severance policy), a COBRA premium subsidy that covers some or all of your health insurance premiums during a continuation period, RSU or stock option vesting acceleration (especially valuable if a cliff was approaching within the next 90 days), an outplacement services budget (typically $3,000–$10,000 for an outside firm), and reference letter language or agreed-upon talking points that the company will use when contacted by future employers.

A nuance that many employees miss: if your employer has a written severance policy—in a handbook, in your offer letter, or in a plan document governed by ERISA—that entitles you to a defined amount of severance upon involuntary separation, that amount is already owed to you and cannot be treated as the consideration for your release. The company must pay it regardless. The severance agreement can only condition payment of amounts above and beyond the pre-existing policy on your signing the release. Read your offer letter and any employee handbook severance policy before evaluating the consideration clause.

Use the severance calculatorto model the after-tax value of each component of the consideration. A COBRA subsidy is worth more on an after-tax basis than equivalent cash severance because it is not included in your income (up to applicable limits). Outplacement services provided in-kind are similarly not taxable income. When comparing two different package offers, compare their after-tax, after-FICA value—not the gross numbers.

General release — scope and the claims you cannot waive#

The general release is the employer’s primary objective in the agreement. It is where you sign away your ability to sue. Understanding exactly what it covers—and what it legally cannot cover—is the most important analytical task in reading a severance agreement.

A typical release reads something like: “Employee hereby releases and forever discharges the Company, its officers, directors, employees, agents, successors, and assigns from any and all claims, known and unknown, arising from or relating to Employee’s employment with or separation from the Company.” The scope is intentionally broad. “Known and unknown” is the most significant phrase: in many states, a release of unknown claims requires specific language and specific warning; the employer’s inclusion of it means they want you to release claims you might not even be aware of yet.

Despite the sweeping language, several categories of claims cannotbe released by a private severance agreement as a matter of law. These protections exist because public policy interest in enforcement outweighs the employer’s interest in finality, and waiving them would undermine statutory schemes that depend on employee participation.

Workers’ compensation claims are generally not waivable under state workers’ comp statutes, which are administered by separate state agencies and governed by their own procedural rules. The release clause in a private agreement cannot reach these rights. Vested ERISA benefits—your 401(k) balance, your vested pension accrual, your vested equity under any ERISA-governed plan—are protected under ERISA and cannot be conditioned on a release. NLRA § 7 rights—your right to engage in concerted activity with co-workers, including discussing wages and working conditions—cannot be waived even in a private agreement; the NLRB’s McLaren Macomb decision reinforces this rule specifically in the severance context.

The right to file a charge with the EEOC or cooperate with EEOC investigationscannot be released. Title VII and related statutes protect the employee’s ability to file an administrative charge with the EEOC and to cooperate with agency investigations, regardless of a severance release. You can release your right to receive monetary damages from an EEOC proceeding (and most severance agreements do exactly that), but you cannot release the right to file the charge or participate in the process. An agreement that purports to prohibit you from filing an EEOC charge is unenforceable on that point.

Sarbanes-Oxley whistleblower protectionsunder 18 U.S.C. § 1514A cannot be waived by private agreement. If you reported fraud on shareholders, securities law violations, or mail/wire fraud to a supervisor, the SEC, the DOJ, or Congress, and if that reporting was a contributing factor in your separation, you retain your SOX whistleblower rights regardless of the release language. Attempting to waive these rights in a severance agreement is unenforceable and may itself constitute a violation.

Qui tam rights under the False Claims Actpresent an even more categorical case. Under 31 U.S.C. § 3730, a private individual (a “relator”) who has knowledge of fraud against the federal government may file a qui tam lawsuit on the government’s behalf. A private severance release cannot extinguish qui tam rights; the government’s interest in recovering fraudulently obtained funds is not subject to private waiver.

Negotiation posture: review the release language with an employment attorney before signing if you have any reason to believe your employment separation involved discrimination, retaliation for protected activity, securities fraud, or workplace safety violations. The value of a potential claim—including one you may not fully understand yet—can exceed the severance consideration by a large margin. Signing the release extinguishes those claims. Insist on explicit carve-out language preserving all of the categories above.

ADEA/OWBPA release — 21-day, 45-day, and 7-day timing rules#

If you are 40 years of age or older, a separate and mandatory statutory framework governs the waiver of your Age Discrimination in Employment Act claims. The Older Workers Benefit Protection Act (OWBPA), which amended the ADEA in 1990, sets out specific procedural requirements that must be satisfied for a release of ADEA claims to be enforceable. These requirements are codified at 29 U.S.C. § 626(f) and fleshed out in the EEOC’s implementing regulations at 29 CFR § 1625.22.

For an individual exit—a single employee being separated, not as part of a layoff group—the OWBPA requires: (1) the waiver must be written in plain language understandable to the average employee; (2) the waiver must specifically reference ADEA rights; (3) the waiver must not release rights arising after the date of execution; (4) the consideration must be something beyond what the employee is already entitled to; (5) the employee must be advised in writing to consult an attorney; (6) the employee must be given at least 21 days to consider the agreement; and (7) the employee must have a 7-day revocation period after signing during which they can rescind the ADEA waiver by written notice. The agreement does not become effective as to ADEA claims until the 7-day revocation period expires.

For a group exit—a reduction in force, a plant closing, or any other “exit incentive program” in which two or more employees are offered severance as part of the same program—the OWBPA requirements become significantly more demanding. The consideration period extends to 45 days, and the 7-day revocation right remains. In addition, the employer must provide a written disclosure (the “decisional unit disclosure”) that identifies: all job titles and ages of individuals selected for the program, all job titles and ages of individuals in the same decisional unit who were not selected, the eligibility factors for selection, and the time limits of the program.

The decisional unit disclosure is where the legal leverage resides. If you receive the disclosure and it shows that the layoff selected a disproportionate number of employees age 40 or older within your department or job classification, you have a factual predicate for an age discrimination claim. Employment attorneys who review RIF disclosures for disparate-impact patterns charge flat fees in the $300–$1,000 range for this analysis. Given that an age discrimination claim can be worth multiples of the severance offer, the attorney’s fee is often worth spending.

One procedural trap: under EEOC guidance, if the employer materially modifies the agreement after you begin the 21- or 45-day review period—even in response to your own negotiation requests—the review clock may restart from the date of the modification. Both employers and employees are sometimes surprised by this rule. If you are in active negotiation of the agreement’s terms during the review period, confirm with your attorney whether the most recent version of the agreement resets the clock and whether you need to re-date your review period accordingly.

Do not waive the 21-day period by signing early. You are entitled to the full window. Signing on day two does not protect you; it is the employer who benefits from an early signature. Take the time.

Non-compete clause — geography, duration, and the 2024 legal landscape#

A non-compete clause restricts your ability to work for a competitor, start a competing business, or engage in competitive activities within a defined geographic area for a defined period after your separation. Historically, the enforceability of non-competes varied enormously by state. As of mid-2026, that variation has sharpened into something closer to a binary: states that broadly enforce non-competes (Texas, Florida, and several others) and states that largely or categorically do not (California, North Dakota, Oklahoma, Minnesota, and several others). The federal landscape shifted dramatically in 2024 and remains unsettled.

Californiahas long had the most protective non-compete statute in the country. Cal. Bus. & Prof. Code § 16600 voids any contract that restrains a person from engaging in a lawful profession, trade, or business, subject to narrow statutory exceptions. The California Supreme Court has repeatedly refused to apply a “reasonableness” test; California non-competes are void, not merely voidable. SB 699, signed in September 2023 and effective January 1, 2024, extended this protection further: it explicitly voids non-compete agreements even if they were signed in another state and even if the agreement nominates another state’s law as controlling. If you are a California-based employee, your employer cannot enforce a non-compete against you by structuring the agreement under Nevada or Texas law.

North Dakota has a categorical statutory ban on non-competes under N.D. Cent. Code § 9-08-06, with limited exceptions for the sale of a business. Oklahoma has a similar statutory prohibition. Minnesota enacted HF 3035 in July 2023, making it one of the most recent states to ban non-competes, with the prohibition applying to agreements entered into on or after July 1, 2023.

At the federal level, the FTC issued a rule in April 2024 that would have prohibited most non-competes nationwide. A federal district court in the Northern District of Texas struck down the rule in August 2024, holding that the FTC exceeded its statutory authority. That ruling is on appeal, and the ultimate resolution remains uncertain as of mid-2026. The FTC rule’s primary practical effect in the interim has been to intensify state-level legislative activity: several additional states are actively considering non-compete bans modeled on the Minnesota and California frameworks.

When reviewing a non-compete clause, examine four dimensions: (1) geographic scope—is it reasonably limited to markets where you actually competed, or does it purport to restrict you nationwide or globally?; (2) temporal scope—12 months is common, 24 months is aggressive, and courts in states that apply a reasonableness test often blue-pencil duration; (3) restricted activities—does it restrict only the specific role you performed, or does it sweep broadly to cover any work for any competitor?; and (4) the consideration supporting the non-compete itself—some states require independent consideration beyond continued employment or severance to support a post-employment non-compete.

For the state-by-state enforceability picture, see our non-compete enforceability map. If a non-compete is unenforceable in your state, you retain significant negotiation leverage: you can decline to sign that clause without losing your entitlement to the rest of the severance—but ensure the agreement does not condition all severance on acceptance of every clause as a package. If the employer insists, negotiate for express severability of the non-compete from the rest of the release so that a court’s invalidation of the non-compete does not void the entire agreement.

Non-disparagement and confidentiality — post-McLaren Macomb#

Non-disparagement and confidentiality clauses are nearly universal in severance agreements. Until February 2023, they were also largely uncontested as a matter of labor law. The NLRB’s decision in McLaren Macomb, 372 NLRB No. 58, changed that calculus materially for the large majority of private-sector employees who are not supervisors or managers.

The Board’s holding in McLaren Macombwas that an employer violates NLRA § 8(a)(1) when it proffers a severance agreement containing non-disparagement and confidentiality provisions that are so broad that they would interfere with employees’ § 7 rights—the right to engage in concerted activity, including discussing wages, working conditions, and treatment by the employer with co-workers, unions, and government agencies. The decision overruled the Board’s own 2020 precedent, which had held that such clauses were permissible because they applied only after the employment relationship ended.

What does this mean in practice? A non-disparagement clause that broadly prohibits you from saying “anything negative” about the employer, its officers, employees, or practices—without any carve-out for protected concerted activity, NLRB proceedings, or union activity—is now potentially an unfair labor practice. A confidentiality clause that prohibits you from disclosing the terms of the agreement to anyone (including co-workers who might need to understand the pattern of how the employer treats departing employees) similarly runs afoul of McLaren Macomb’s reasoning. The Board emphasized that the mere act of tendering such a clause—even if the employee declines to sign—could constitute an unfair labor practice.

The categories of speech that McLaren Macomb protects include: discussing the terms of your severance with co-workers or a union; making statements to the NLRB or participating in NLRB proceedings; filing charges or complaints with government agencies including the EEOC, OSHA, and the DOL; and engaging in public advocacy about working conditions (which is typically protected concerted activity under the Act, even post-employment for former employees who retain an ongoing interest in the terms).

What remains permissible after McLaren Macomb: employers can still prohibit disclosure of genuine trade secrets, confidential business information, and personally identifiable information of customers or employees. A narrowly drawn confidentiality clause limited to those categories is lawful. A narrowly drawn non-disparagement clause that prohibits defamatory, false statements of fact—but not truthful statements or protected concerted activity—is also likely lawful.

Negotiation approach: when you receive a severance agreement with a non-disparagement or confidentiality clause, ask that it include explicit carve-out language permitting: NLRB charges and participation in NLRB proceedings; EEOC charges and cooperation; participation in DOL or OSHA investigations; discussion of terms with a union or with co-workers for mutual aid purposes; and truthful statements about your employment experience. Employers who understand the current legal landscape will accept this language. Those who resist may be offering a clause that is already unenforceable under McLaren Macomb—which weakens their leverage, not yours.

Note that McLaren Macomb’s protections apply specifically to non-supervisory, non-managerial employees covered by the NLRA. Supervisors and managers (as defined under the Act) do not have NLRA § 7 rights and are not protected by this decision. If you were a manager, director, or executive, the traditional non-disparagement analysis applies: enforceability depends on scope, duration, and your state’s general contract law.

Cooperation clause — what you’re agreeing to after you leave#

A cooperation clause requires you to assist the company after your separation in connection with investigations, litigation, regulatory proceedings, audits, or other matters that arose during your employment. On its face, the obligation sounds reasonable. In practice, an open-ended cooperation clause can impose a significant and uncompensated burden on your post-separation life.

The problems typically arise from three drafting choices. First, the obligation is often undated: “Employee shall cooperate with the Company for so long as the Company deems necessary.” A lawsuit arising from events during your employment can take five or more years to reach trial. Without a time cap, you can be summoned for document review, depositions, and trial testimony years after you have moved on to a new employer. Second, cooperation is often unpaid: the clause specifies only reimbursement for reasonable expenses without any compensation for your time. Being deposed for a full day as a fact witness, plus preparation time, can easily consume two to three days—billed at your new employer at whatever rate you now command—for zero compensation. Third, the scope is often vague: “any matters relating to your employment or the Company’s business” is broad enough to encompass virtually any commercial activity you participated in.

Negotiation approach: push for four specific modifications. First, cap the cooperation period at 12 to 24 months from your separation date, with an extension available only by mutual written agreement. Second, require the company to give you reasonable advance written notice (at least five business days where practicable) of any required cooperation activity, and to schedule it at times that do not unreasonably interfere with your then-current employment. Third, require reimbursement not only for out-of-pocket expenses but also for your time at a defined reasonable hourly rate. Fourth, require the company to reimburse your attorney’s fees if you are deposed or called as a witness, given that you will need independent legal advice on how to respond to questions as a fact witness while protecting your own interests.

Return of property — devices, IP, and personal data#

Return-of-property clauses are standard and generally uncontroversial in their core requirement: company-issued laptops, phones, access badges, and any physical property belonging to the employer must be returned. The practical issues arise at the margins—in the handling of personal data stored on company devices, the treatment of contacts and relationships built during employment, and the interaction with state trade secret law.

If you have used a company-issued device as your primary working machine—common for employees who worked remotely—years of personal data may be stored on it: personal emails, family photos, personal financial documents, and communications with your own attorney. Before you return the device, raise the issue explicitly with HR or legal: request the opportunity either to personally extract your personal files (under supervision if necessary) or to have the company preserve and deliver a copy of personal files before wiping the machine. Most employers will accommodate a reasonable request. Do not assume they will automatically do it.

LinkedIn connections and professional relationships present a more nuanced question. If you built professional relationships in the course of doing your job—meeting clients, attending conferences, corresponding with vendors—those relationships are generally yours to retain. LinkedIn connections made through your personal account are not company property even if the connection was made in your professional capacity. The line becomes murkier if the company maintained a CRM database of customer contacts built on company time and resources; that database belongs to the employer. Your personal memory of those contacts, however, is not property that can be returned.

California Labor Code § 2870, discussed in more detail in the IP assignment section below, provides additional protection for work product created on personal time with personal resources. Ensure that any materials you created outside working hours and without company resources are excluded from the scope of the return-of-property obligation. If you have any uncertainty about whether specific materials are personal or company property, raise it explicitly before signing and get the answer in writing.

IP assignment and inventions — state-statute carveouts#

IP assignment clauses in severance agreements typically reaffirm or extend the IP assignment provisions from your original offer letter or employment agreement. They often purport to assign to the employer all inventions, works of authorship, discoveries, and improvements conceived during or after your employment that relate in any way to the company’s business or anticipated research and development. What many employees do not know is that several states have enacted statutes that carve out specific categories of inventions from mandatory IP assignment—and that those carveouts cannot be waived by contract.

Californiaprovides the most protective and frequently litigated carveout. California Labor Code § 2870 provides that an IP assignment agreement cannot require an employee to assign rights to any invention that: (1) was developed entirely on the employee’s own time; (2) without using the employer’s equipment, supplies, facilities, or trade secret information; (3) unless the invention relates to the employer’s business, or to its actual or demonstrably anticipated research or development, or unless the invention resulted from work performed for the employer. Inventions meeting all three criteria belong to the employee, regardless of any contractual provision to the contrary. California employers are required by statute to include notification of this carveout in their IP assignment agreements.

Washington has an analogous provision in RCW 49.44.140, protecting inventions developed on personal time without employer resources unless the invention relates to the employer’s business or results from the employee’s work for the employer. Minnesota provides a similar carveout under Minn. Stat. § 181.78, requiring written notification to employees of the existence of any employer IP assignment obligation and explicitly carving out inventions that qualify under the same criteria. Illinois codifies protections in the Illinois Employee Patent Act, 765 ILCS 1060, with parallel requirements.

North Carolina, Delaware, and several other states have either enacted similar carveouts or have court decisions that substantially limit the reach of IP assignment clauses as applied to employee personal-time inventions. If your state is not California, Washington, Minnesota, or Illinois, consult your state’s employment statutes or an employment attorney before assuming the IP assignment clause reaches everything it purports to cover.

Practical significance: if you have a side project, a personal software tool, a patent application in progress, or any invention you developed on personal time that may be adjacent to your employer’s business, the IP assignment clause in your severance agreement is the moment at which you need to assert the statutory carveout explicitly. Insist on language that acknowledges the applicable statutory carveout and excludes from the assignment any invention protected thereunder. Provide the employer with a written schedule of inventions you are claiming as personal property under the statute.

Choice of law and forum — which state’s rules actually govern#

The choice-of-law clause specifies which state’s legal rules will govern interpretation and enforcement of the agreement. It is typically drafted to favor the employer: large companies headquartered in Delaware, Texas, or New York will often specify their home state’s law regardless of where the employee worked. This matters because the enforceability of non-competes, the validity of broad releases, and the standards for unconscionability vary meaningfully across states.

The most commonly litigated scenario involves non-competes. A Texas employer might include a Texas choice-of-law clause in an agreement with a California employee, knowing that Texas courts will enforce reasonable non-competes while California courts will not. Post-SB 699, the California legislature has directly addressed this: the statute explicitly provides that a choice-of-law clause is void as applied to a California worker for purposes of enforcing a non-compete, and that California courts will apply California law regardless of the contractual choice. An employer who attempts to enforce a non-compete in a California court against a California employee under Texas or Nevada law will find SB 699’s override controlling.

Outside the non-compete context, choice-of-law clauses are generally upheld by courts applying the Restatement (Second) of Conflict of Laws § 187 framework, provided the selected state has a material connection to the parties or the transaction. Delaware is often selected for its well-developed contract law, not because the employee has any connection to Delaware. This generally does not impose a meaningful burden unless you end up in litigation.

The forum-selection clause specifies where any dispute must be litigated—typically the employer’s home state, often a specific county. An employee who lives and worked in Seattle being required to litigate in a Delaware court faces a practical barrier that is itself a negotiation lever. Negotiate for a forum in your state of employment, or for a mutual agreement to arbitrate in a neutral location. If an arbitration clause is included—common in larger company agreements—check whether it waives your right to class or collective action, as those waivers are generally enforceable under the Federal Arbitration Act but reduce your collective leverage meaningfully.

Severability and integration — why verbal promises evaporate#

Two boilerplate clauses near the end of most severance agreements have practical consequences that employees routinely underestimate.

The severability clause provides that if any provision of the agreement is found to be unenforceable by a court, the remaining provisions survive. This is almost always in the employer’s interest: if the non-compete is struck down, the rest of the agreement—including your release of all claims—remains fully effective. You cannot use the invalidity of the non-compete as a basis for rescinding the entire agreement or recovering the release. Conversely, if you knowingly signed a release and accepted severance, and you later discover that the non-disparagement clause is unenforceable under McLaren Macomb, the release itself is not voided—only the invalid clause falls away. Read the severability clause carefully, and if you intend to condition your agreement on a specific clause being included or excluded, make that an express condition of your signing rather than relying on post-hoc severability.

The integration clause(sometimes called a “merger clause”) provides that this agreement constitutes the entire agreement between the parties and supersedes all prior negotiations, representations, and promises, whether written or oral. This clause is the killer of handshake promises.

If your HR representative told you verbally that the company would provide outplacement support for a year, help you get placed in a comparable role, give you a positive reference, or pay for a professional certification, and that promise is not in the written agreement—the integration clause means that promise does not exist. Courts will not receive extrinsic evidence of prior oral promises to contradict or supplement a written agreement that includes a standard integration clause. The oral commitment, however sincere it felt at the time, is legally void upon your signature.

The fix is simple: reduce every verbal promise to writing before you sign. Any commitment the employer made during negotiations—an outplacement budget, agreed-upon reference language, a commitment not to contest your UI claim, a written confirmation that certain RSUs will vest—must appear in the signed agreement or in an exhibit attached and incorporated by reference. If the HR representative hesitates to put the promise in writing, treat that hesitation as meaningful.

Tax withholding language — what the agreement and your paystub show#

Most severance agreements contain a short tax withholding provision that states something like: “The severance payment shall be subject to all applicable federal, state, and local tax withholding.” That language is standard and compliant. What it does not tell you is the specific withholding rate that will be applied—and that rate determines how much of the gross check you will actually see.

Under IRS Publication 15-T (Federal Income Tax Withholding Methods), employers apply a 22% flat federal supplemental withholding rate to separately identified severance payments where the cumulative supplemental wages paid by that employer in the calendar year do not exceed $1,000,000. This is the default method for most large employers, and the 22% flat rate is fixed—it does not vary with your W-4, your filing status, or your total year-to-date income. It is not your actual tax rate; it is a prepayment. The 22% withholding will be too low if your total income for the year puts you in the 24%, 32%, or 35% bracket, and too high if your total income is modest. The reconciliation happens at filing.

For executive-level packages, some agreements include a gross-up provision: the employer agrees to pay you an additional amount sufficient to cover the income taxes (and sometimes the taxes on the gross-up itself) so that you receive the stated net amount regardless of your tax liability. Gross-up provisions are now less common due to shareholder and proxy-advisor pressure, but they remain a negotiation lever for senior roles where the total package is large enough that the employer has incentive to guarantee the net value.

For the full mechanics of how federal supplemental withholding works, the FICA layer, state supplemental rates, and the Section 280G excise tax framework, see our detailed guide at How severance taxes actually work. The tax side of the agreement is often more impactful to your actual net proceeds than the gross severance amount itself, and understanding the withholding/owed gap is essential before you spend the net check.

One structural point: if your severance is paid as salary continuation (bi-weekly payments over 6 or 12 months) rather than a lump sum, the withholding treatment is the same but the FICA wage-base implications differ. Payments made in the new calendar year after a December separation start the Social Security wage-base clock over, which means you pay Social Security tax again on the first dollars of each new year’s continuation payments. A lump sum paid before year-end avoids that reset. This asymmetry is worth modeling explicitly when comparing a lump-sum offer to a salary continuation offer. Use the severance calculator to compare the two structures on an after-tax basis before deciding which to accept.

What to negotiate before signing — a prioritized checklist#

Most employees treat the severance offer as a take-it-or-leave-it proposition. It is not. Employers have incentive to resolve separations cleanly, and the window between receiving the agreement and signing it is your best and only opportunity to negotiate. Here are the items worth prioritizing, in rough order of typical financial impact.

More weeks of severance. The baseline formula at most companies is one to two weeks per year of service, capped at a maximum (typically 26 weeks). Employees with more than five years of tenure often have a realistic argument for exceeding the formula, particularly if they are signing a meaningful release of valuable claims. Use the severance calculator to model the after-tax value of additional weeks before deciding how hard to push.

COBRA premium reimbursement for 6–12 months.COBRA continuation coverage under a typical employer-sponsored group health plan costs substantially more than what employees paid during employment, because the employer’s premium contribution ends. A COBRA subsidy that covers the employer’s share of premiums for 6 to 12 months is a common and often successful request. A family COBRA premium can easily exceed $2,000 per month; 12 months of subsidy is worth $24,000 in after-tax terms (COBRA subsidies are generally not taxable income to the employee). This is one of the highest-value items to negotiate because it translates directly into cash that would otherwise leave your pocket immediately.

RSU and stock option vesting acceleration.If you have unvested RSUs with a vesting date within 90 days of your separation, the gap in value between “vest before separation” and “forfeit at separation” can be very large. Ask explicitly for acceleration of any RSUs or options scheduled to vest within 90 to 180 days of your last day. Also ask about the post-termination exercise window for any ISOs or NSOs: the default is 90 days for ISOs (after which they convert to NSOs or expire), and some agreements extend that window as part of the severance consideration.

Outplacement budget.A $3,000–$10,000 outplacement budget—payable to an outside firm for resume writing, interview coaching, and job search support—is a low-cost item for the employer and can meaningfully accelerate your search. Because it is provided as services rather than cash, it is not taxable income to you. Ask for it explicitly if it is not already in the offer.

Reference letter and agreed talking points.Negotiating the specific language of reference letters and the talking points that HR will use when contacted by future employers matters more than most people appreciate. A neutral “employment verification only” policy is the most common default; a committed positive reference from your direct manager is worth negotiating for. Get it in writing and include it as an exhibit to the agreement, so it survives the integration clause.

Non-compete removal or narrowing.If a non-compete is included, research whether it is enforceable in your state before signing. If you are a California, North Dakota, Oklahoma, or Minnesota employee, the non-compete is almost certainly void. Signing it does not make it enforceable, but explicitly refusing to sign it makes your position clearer and may remove it from the agreement entirely. If the non-compete is in an enforcing state but is unreasonably broad, negotiate the geographic scope, duration, or activity restriction down to something that genuinely reflects your competitive risk to the employer—not their aspirational wish list.

McLaren Macomb-compliant non-disparagement language. Insist on adding explicit carve-out language to any non-disparagement clause preserving your right to: file charges with the NLRB, EEOC, OSHA, or DOL; cooperate with government agency investigations; discuss terms of employment with current or former co-workers for purposes of mutual aid; and make truthful statements. If the employer drafted the agreement after February 2023 and has not included these carve-outs, they are either unaware of McLaren Macomb or are hoping you are.

Cooperation period cap and paid-time provision.As discussed above, cap the cooperation obligation at 12 to 24 months and require reimbursement for your time at a defined rate. Open-ended unpaid cooperation is one of the most costly overlooked clauses in a long-tenured executive’s severance agreement.

401(k) vesting acceleration for cliff-cusp employees. If you are within a few months of a 401(k) employer-match vesting cliff, ask for acceleration of the unvested employer match as part of the consideration. The unvested match amount is often substantial for employees who have been at a company two to four years and are approaching a four-year cliff.

The tax implications of each component of what you negotiate matter. For a detailed view of how the tax treatment varies by component—cash severance versus COBRA versus outplacement versus RSU acceleration—see How severance taxes actually work. For California employees, the California severance guide addresses state-specific rules including SDI, the non-compete void rule under SB 699, and the WARN Act notice period that affects your negotiating timeline. The FAQ covers the most common questions about what to expect at each stage of the process.

Above all: the 21-day review window exists to give you time to get legal advice, not just to read the document once and sign it on day three. If the package is above a threshold where a few hundred dollars in attorney fees is a meaningful investment—and for almost any professional-track employee it is—use the time to have an employment attorney review the release and the non-compete before you sign. The lawyer reviews the agreement; you decide whether to sign.