Severance Agreements and Employment Contracts

What is a severance agreement, and what are you actually signing?

A severance agreement is a contract that trades money for your legal claims. The employer pays you something you were not already owed; in exchange, you sign a release giving up your right to sue over anything that happened during your employment. That is the whole transaction. Everything else in the document (the confidentiality clause, the non-disparagement clause, the cooperation clause, the return-of-property clause) is built around it.

This matters because the release is usually written as broadly as the law allows. A standard release covers claims you know about and claims you do not, under every federal, state, and local statute the drafter can name. If you were fired for an illegal reason, if you were passed over because of your age or your pregnancy, if you were punished for reporting something, or if you are owed overtime or commissions, those claims are extinguished by your signature, even if you did not know you had them when you signed.

The document is often handed to you in the same meeting where you learn you are losing your job, which is the worst possible moment to evaluate a contract. That timing is not an accident. It is why the single most valuable thing you can do is slow the process down.

Is your employer required to give you severance in New York?

No. New York does not require private employers to pay severance. Severance becomes a legal entitlement only in specific circumstances:

• A written contract or offer letter promises severance on termination.
• A collective bargaining agreement provides for it.
• A formal severance plan or policy exists, and if it does, that plan may be an ERISA welfare benefit plan, which carries its own written claim and appeal rights the employer must honor.
• A consistent past practice of paying severance on the same terms to similarly situated employees, which can support a claim under some circumstances.

If none of those apply, severance is purely discretionary, which is precisely why it is negotiable. A discretionary payment is set by what the employer thinks it needs to pay, and that calculation changes when the employer learns you have counsel and a claim.

One point deserves emphasis: earned wages are not severance. Your final paycheck, earned but unpaid commissions, and vacation payout owed under the employer’s written policy are yours regardless of whether you sign. An employer that conditions payment of already-earned wages on a release is not offering consideration for anything. It is attempting to buy your claims with your own money. If your last check is short, that is a separate wage claim with its own six-year deadline and its own liquidated-damages exposure.

What must a severance agreement contain to be legally valid?

Three things, at minimum.

New consideration The employer must give you something of value you were not already entitled to receive. Payment of accrued wages, an unused-PTO payout required by policy, or a benefit you already vested does not count.

A knowing and voluntary waiver Courts in New York look at the total circumstances: your education and business experience, how clearly the agreement is written, how much time you had, whether you had any role in negotiating the terms, whether you were advised in writing to consult a lawyer, and whether the money exceeded what you were already owed. A one-day deadline on a dense twelve-page release handed to a non-native English speaker looks very different to a judge than a 45-day window with counsel involved.

Compliance with the OWBPA, if you are 40 or older The Older Workers Benefit Protection Act sets specific requirements for waiving age discrimination claims: the agreement must be written so an average person can understand it, must specifically reference the ADEA, must advise you in writing to consult an attorney, must give you at least 21 days to consider it (45 days if the offer goes to a group or class of employees as part of an exit incentive or reduction-in-force), and must give you 7 days after signing to revoke. Group offers must also disclose the job titles and ages of the employees selected and not selected for the program. A release that fails these requirements does not validly waive your age claims, and you generally do not have to return the money to challenge it.

That disclosure requirement in group layoffs is often where cases begin. The ages and titles list is a snapshot of who the company decided to cut, and it can show a pattern the employer never intended to hand over.

Which severance terms are unenforceable or restricted in New York?

More than most employers’ form agreements acknowledge. A release cannot validly do the following:

Two more restrictions are worth knowing. New York law voids provisions that would force you to forfeit the settlement or pay liquidated damages for discussing conduct you are permitted to discuss. And for employees who are not supervisors, sweeping confidentiality and non-disparagement clauses have been challenged as interfering with rights under the National Labor Relations Act.

Finally, note what is not in the list: general releases of discrimination, retaliation, and contract claims are enforceable in New York when the requirements above are met. Assuming a bad clause is “probably unenforceable” and signing anyway is a poor strategy.

What gives you leverage in a severance negotiation?

Leverage is information plus risk. Employers raise offers when the cost of not raising them goes up. The factors that move a number, roughly in order of force:

1. A documented legal claim Contemporaneous emails showing the real reason for your termination, a complaint you made shortly before you were let go, or a written accommodation request that went unanswered.
2. Timing Termination within weeks of protected activity (a complaint, a leave request, a disability disclosure) is the single most persuasive fact pattern in employment law, because a jury can see it without expert help.
3. Comparators Employees outside your protected class who did the same thing and kept their jobs.
4. Defects in the employer’s paperwork An OWBPA-noncompliant release, a missing group-layoff disclosure, a WARN Act notice problem in a mass layoff, or wage statements that do not comply with the New York Labor Law.
5. Unpaid compensation Earned commissions, an unpaid bonus, or misclassified overtime carry statutory liquidated damages and attorneys’ fees, which converts a modest sum into meaningful exposure.
6. Your seniority and visibility Senior employees have access to information the company does not want in a public filing.
7. A restrictive covenant the employer wants honored If they want your non-compete respected, that is a thing they are buying, and it has a price.

Leverage you do not have: how unfair the decision felt, how long you worked there, or how much you need the money. Those are real, but they do not change the employer’s risk calculation, and framing a demand around them weakens it.

What can you negotiate besides the dollar amount?

Non-monetary terms are usually the easiest concessions to win because they cost the employer little. Ask about:

• Severance amount and structure: total weeks, and whether it is paid as salary continuation or a lump sum.
• Payment timing, structured so severance does not eliminate your unemployment eligibility.
• COBRA premiums paid by the employer for a defined number of months.
• Characterization of the separation: resignation versus layoff, which affects both unemployment and future job applications.
• A neutral reference, with a named contact and agreed language, plus a commitment that the company will confirm only dates and title.
• Release or narrowing of the non-compete and non-solicit, with an explicit carve-out for the roles and clients you actually intend to pursue.
• Equity treatment: accelerated vesting, an extended post-termination exercise window, or the ability to keep unvested awards through a cliff date.
• Earned commissions and bonus, paid in full and outside the release.
• Mutual non-disparagement, so the obligation runs both ways.
• Tax allocation between wage and non-wage components.
• Reimbursement of your attorneys’ fees for reviewing and negotiating the agreement.
• Removal of overbroad cooperation clauses that would obligate unlimited future assistance without compensation.

How do employment contracts and restrictive covenants fit in?

Severance is where employment contracts come home to roost. Clauses you signed years ago on your first day (often without reading them) determine what your exit looks like.

Non-competes New York has no statute broadly banning or blessing them. Enforceability turns on a court’s reasonableness analysis: the restriction must be no broader than necessary to protect a legitimate interest such as trade secrets or client goodwill, reasonable in time and geography, not unduly burdensome on you, and not harmful to the public. A New York court may decline to enforce an overbroad covenant, or may narrow it. Employers know this, which is why a well-timed request to release the covenant frequently succeeds.

Non-solicitation clauses Clauses restricting contact with clients or former colleagues are analyzed under the same reasonableness framework and are often enforced more readily than non-competes, because they are narrower.

Arbitration clauses These send disputes to a private forum instead of court. New York enacted a statute limiting mandatory arbitration of discrimination claims, but federal courts have frequently held the Federal Arbitration Act preempts it. The important exception is sexual harassment and sexual assault: federal law lets you void a pre-dispute arbitration clause for those claims and proceed in court. If your claim involves harassment, the arbitration clause may not bind you.

Commission plans and bonus plans These frequently contain forfeiture language saying you must be employed on the payment date to be paid. New York courts do not always enforce that language against wages already earned, particularly where the commission was fully earned before separation. If your exit leaves commissions on the table, that is a live unpaid commissions claim, not a lost cause.

What is severance actually worth?

There is no formula, and anyone who gives you one without reading your file is guessing. Two different valuations run in parallel.

The market convention Employers often anchor to one to four weeks of base pay per year of service, scaled by seniority. Some companies have a published severance plan that sets the floor. This is a custom, not a right.

The claim valuation If you have a viable discrimination, retaliation, or wage claim, the package is really a settlement, and it is valued the way a lawsuit is valued: back pay from termination to the present, front pay where returning to the industry will take time, emotional distress damages, statutory liquidated damages on unpaid wages under N.Y. Lab. Law § 198(1-a), punitive damages where the conduct was willful or reckless (the New York City Human Rights Law is expressly construed more liberally than its federal counterpart), and the employer’s own defense costs, which are real money even in a case they win.

Where the second number is larger than the first, the negotiation stops being about tenure and starts being about exposure. That is the shift a lawyer is there to create.

What should you do right now if you were handed a severance agreement?

1. Do not sign it today Nothing good happens from signing fast. If the employer set a short deadline, ask in writing for an extension. Most grant one, and a refusal is itself informative.
2. Do not negotiate verbally in the exit meeting Say you will review the document and respond. Anything you say about being fine with the decision can surface later.
3. Preserve your evidence before access is cut off Forward relevant emails to a personal account, screenshot messages, and save your offer letter, handbook, commission plan, equity grants, performance reviews, any complaint you made, and the termination notice.
4. Write a timeline while it is fresh: dates, who said what, who was present, and what you reported to whom.
5. Find every contract you ever signed with this employer, including the arbitration agreement and any restrictive covenant.
6. Check whether the agreement mentions the ADEA and gives you 21 or 45 days if you are 40 or older. A missing or short window is a defect.
7. File for unemployment Applying does not waive any claim, and it establishes your record.
8. Have the agreement reviewed before the deadline runs Once the revocation period closes, your leverage is gone.

Our step-by-step guide to what to do before you sign a severance agreement covers the first 48 hours in more detail, and how long you have to file sets out the deadlines a release would extinguish. To turn the list above into the specific questions your situation raises, work through the severance agreement checklist. It is a guide rather than a review, and it never sees your document, so do not paste any part of your agreement into it.

How does TA Legal Group handle severance review and negotiation?

We represent employees and executives in the great majority of our matters, and employers in a limited number of them. We run a conflict check before taking any case. A severance review starts with the two questions that decide everything: what claims does this document release, and what are those claims worth? We read the release against your actual facts, your contracts, your pay records, and the statutory deadlines that apply, then tell you plainly whether the offer is fair, whether it is defective, and what a realistic counter looks like.

Tim Alamgir spent years defending employers inside an AmLaw 200 labor and employment practice before moving to the employee side. That experience shapes how we negotiate: we know how in-house counsel prices exposure, which arguments get escalated internally, and which demands are treated as routine rather than as a fight. Where a negotiation does not produce a fair result, we are prepared to file, and counterparties who deal with us know that, which is part of why negotiations resolve.

If the review uncovers a claim we take on, that matter is usually handled on a contingency fee basis: no fee unless we recover for you. Case costs and disbursements are advanced by the firm and reimbursed from any recovery. The initial case evaluation is free and confidential, and fee terms for any standalone severance review are put in writing before work begins.

If you are holding an agreement with a deadline on it, contact us before you sign. There is no cost to find out what you are giving up.