Take the First Step
May 5, 2025 · Benjamin J. Treger
What You’re Giving Up When You Sign
Your employer just handed you a severance agreement. Maybe they offered two weeks of pay, or four, or eight. Maybe they were sympathetic about it. Maybe they told you it was “standard” or “what we offer everyone.”
It is not a gift. It is a transaction. And in most cases, you are the one giving up significantly more than you are getting.
At its core, a severance agreement is a contract in which you trade your legal claims for money. The employer pays you a sum, and in exchange, you sign a release giving up your right to sue them. The employer is not paying you because they feel bad or because they are generous. They are paying you because someone at the company (probably their lawyer) has evaluated the risk of you filing a claim and decided that paying you a relatively small amount now is cheaper than defending a lawsuit later.
That calculation is almost always correct from the employer’s perspective, which is exactly why you should question the initial offer and consult an attorney before signing.
Nearly every severance agreement contains a general release of claims. This is the most important section of the document, and it is written to be as broad as possible. In exchange for the severance payment, you agree to release the employer from all legal claims, known and unknown, arising out of your employment and its termination. That means wrongful termination, discrimination, harassment, retaliation, unpaid wages, unpaid overtime, meal and rest break violations, failure to reimburse expenses, and anything else you might have a right to pursue. All of it, gone.
California Civil Code § 1542 provides that a general release does not extend to claims the releasing party does not know about at the time of signing. Severance agreements almost always include a specific waiver of § 1542, which means you are releasing claims you have not even identified yet. This is one of the most critical reasons to have an attorney review the agreement before you sign: there may be claims worth far more than the severance that you do not yet know you have.
Once you sign, those claims are gone. There is no grace period. There is no undo button. The release is permanent.
Employers set the initial severance offer based on what they think you will accept, not based on what your potential claims are actually worth. The offer is a starting point, not a final number. If you have potential claims for discrimination, retaliation, harassment, unpaid wages, or wrongful termination, the value of what you are being asked to release may be many times what is being offered.
An attorney can evaluate the strength and estimated value of your potential claims and negotiate a severance package that reflects the actual risk the employer is trying to buy its way out of. In many cases, the negotiated amount is a significant multiple of the initial offer. Employers expect negotiation; they have built room into the number for exactly this purpose.
Beyond the release, severance agreements typically include provisions that limit your freedom in ways you may not fully appreciate until it is too late.
Non-disparagement. You agree not to say anything negative about the company, its officers, directors, or employees. This sounds reasonable until you realize it means you cannot truthfully describe what happened to you in any public forum, on social media, in professional conversations, or when a future employer asks why you left. Note: California law now limits the enforceability of non-disparagement clauses in settlement agreements involving workplace harassment, discrimination, or retaliation, but many employers continue to include them.
Confidentiality. You agree not to disclose the existence or terms of the agreement (including the amount) to anyone other than your attorney, tax advisor, or spouse. Some agreements go further and prohibit you from disclosing that any agreement exists at all.
Non-solicitation. You agree not to recruit or solicit former colleagues to leave the company for a specified period. This can limit your ability to build a team at a new employer or start your own venture.
Cooperation. You agree to assist the company in any future litigation, investigation, or proceeding, potentially for years. This can mean making yourself available for depositions, producing documents, or testifying on behalf of the company.
Each of these clauses is negotiable. Some can be narrowed, eliminated, or made mutual (requiring the employer to follow the same rules). An attorney can advise you on which provisions are standard, which are overreaching, and which represent meaningful limitations on your post-employment life.
Under California law, employers cannot force you to sign a severance agreement on the spot. If the agreement includes a release of age discrimination claims (applicable to employees over 40), the federal Older Workers Benefit Protection Act requires 21 days to consider the agreement (45 days in a group layoff) and 7 days to revoke after signing. Even without OWBPA requirements, any legitimate employer will give you reasonable time to have the agreement reviewed by counsel.
If your employer is pressuring you to sign immediately, telling you the offer “expires today,” or refusing to let you take the document home, that is a red flag. It suggests the employer knows the offer undervalues your claims and does not want you to discover that.
How your severance payment is taxed depends on how it is structured. Payments characterized as wages are subject to income tax withholding and payroll taxes. Payments allocated to emotional distress or personal physical injury claims may receive different tax treatment. The allocation between these categories is often negotiable and can significantly affect how much you actually take home. An attorney can work with your tax advisor to structure the agreement in the most favorable way.
Sometimes the right move is not to sign at all. If your potential claims are worth significantly more than the offered severance, and the employer is unwilling to negotiate to a number that reflects their actual exposure, declining the severance preserves your right to pursue those claims in court. This is a strategic decision that should be made with legal counsel, but it is a real option. Not every severance agreement is worth taking.
When you schedule a consultation about a severance agreement, bring the agreement itself, your most recent pay stubs, any written performance reviews, your offer letter or employment agreement, and any documentation related to complaints you filed, leave you took, or events that preceded your departure. The more context your attorney has, the better they can evaluate the strength of your claims and the adequacy of the offer.
At Treger Legal, we review severance agreements and advise employees on whether to sign, negotiate, or decline. The consultation is free.
This post is for informational purposes only and does not constitute legal advice. Consult with a qualified employment attorney about your specific situation.