Severance Agreement Template (Free Sample)
A severance agreement is a written agreement between an employer and a departing employee in which the employer provides pay or benefits the employee would not otherwise receive, and the employee, in return, usually releases legal claims against the employer and agrees to terms such as returning company property. Below: how a severance agreement differs from a separation agreement and a settlement agreement, what to include, the federal rules that limit what it can say (including the extra rules for employees aged 40 and over), and a free sample severance agreement you can copy into Word.
Drafting a severance agreement in Word? LexDraft drafts a first version from your plain-English description and reviews it with tracked-change redlines.Free plan: 5,000 generated words a month, no credit card.
Install free in WordLast checked: 23 October 2026. This page is general information about United States law and practice, not legal advice. Employment law varies by state and city, and federal rules change. Employers should have employment counsel review a severance agreement before it is offered, and employees are encouraged to have a lawyer review one before signing.
What is a severance agreement?
A severance agreement sets out the terms on which an employee leaves a job: the last day of employment, what the employee will be paid, what happens to benefits, and what each side promises. In the typical US severance agreement, the employer pays severance (for example, a number of weeks of pay) and the employee signs a release of claims, giving up the right to sue the employer over the employment and its end.
Federal law generally does not require private employers to offer severance pay. According to the US Department of Labor, severance pay is generally a matter of agreement between an employer and an employee. An employer may still be obliged to pay it because of an employment contract, an offer letter, a severance plan or policy, or a collective bargaining agreement, and a few state laws require it in specific situations, such as certain mass layoffs in New Jersey. Severance is separate from final pay: wages already earned, and any accrued vacation that state law or company policy requires to be paid out, are owed whether or not the employee signs anything.
Severance vs separation vs settlement agreement
These names overlap, and the same document can carry any of them. What matters legally is what the document says, not its title. In general US usage:
| Document | What it does | When it is used | Typical content |
|---|---|---|---|
| Severance agreement | Provides pay or benefits for a departing employee, usually in exchange for a release of claims. | At or shortly after the end of employment, often in a layoff or restructuring. | Severance pay, benefits, release, return of property, confidentiality, non-disparagement. |
| Separation agreement | Records the terms on which employment ends. Often used as another name for a severance agreement; it may or may not include severance pay. | Any departure: termination, resignation or a mutual decision to end employment. | Separation date, final pay, benefits, transition duties and, if severance is paid, a release. |
| Mutual termination agreement | Records that the employer and employee agree to end the employment, rather than one side firing or resigning. | When both sides prefer an agreed exit and an agreed explanation. | Agreed separation date and wording, transition, and often severance and a release. |
| Settlement agreement | Resolves an existing dispute, such as a lawsuit, an agency charge or a demand letter. | After a claim has been made, whether or not the person still works for the employer. | Settlement payment, release of the specific claims, dismissal of the case, tax treatment. |
"Termination agreement" can also mean an agreement that ends a commercial contract between two businesses. For that kind of agreement, see the termination clause review guide. If an employee has already raised a claim, see the settlement agreement review guide.
What to include in a severance agreement: checklist
- Parties and separation date. The employer's legal name, the employee's name, and the last day of employment. Say whether the departure is a layoff, a resignation or a mutual decision, if the parties have agreed how to describe it.
- Final pay. Confirm that earned wages, and any accrued vacation that must be paid out, will be paid by the date state law requires, whether or not the employee signs. State deadlines for final pay vary, and some are as early as the last day of work.
- Severance pay. The amount, whether it is paid in a lump sum or as salary continuation, when payments start, and that it is subject to tax withholding. Severance pay must be something the employee is not already entitled to receive.
- Benefits and COBRA. When health coverage ends, whether the employer will pay or reimburse COBRA premiums for a period, and what happens to other benefits such as retirement plan vesting, equity awards and bonuses (check each plan document, which usually controls).
- Release of claims. Which claims the employee gives up, a list of the main laws covered, and the claims that are excluded (see "Rights a severance agreement cannot take away" below). For employees aged 40 and over, the release must meet the Older Workers Benefit Protection Act requirements.
- Protected rights carve-out. A clear statement that nothing in the agreement stops the employee from filing a charge with a government agency, cooperating in an investigation, or reporting possible violations of law.
- Return of property. Laptops, phones, badges, keys, documents and data to be returned by a set date, and how personal files will be separated from company files.
- Confidentiality. Continued protection of the employer's confidential information and trade secrets, and any agreed confidentiality of the agreement's terms, drafted within the limits described below.
- Non-disparagement. Whether the employee, the employer, or both agree not to make disparaging statements, and for an employer, which people the promise covers. Keep it narrow and include the protected rights carve-out.
- Cooperation. Help with the handover of work and with any later investigation or lawsuit about matters the employee worked on, with reasonable notice and reimbursement of expenses. A cooperation clause should never require anything other than truthful testimony.
- References. What the employer will say to prospective employers, for example confirming only dates of employment and job title, and who will handle reference requests.
- Existing obligations. Which earlier agreements stay in force, such as a confidentiality, invention assignment or restrictive covenant agreement, and which are replaced.
- No admission, governing law and entire agreement. That the agreement is not an admission of wrongdoing, which state's law applies, and that it is the whole agreement on these subjects.
- Time to consider, revocation and signatures. How long the employee has to consider and sign, any revocation period, when the agreement becomes effective, and signature lines for both sides.
Federal rules that limit a severance agreement
Employees aged 40 and over: OWBPA and the ADEA
The Age Discrimination in Employment Act (ADEA) protects employees aged 40 and over. It generally covers private employers with 20 or more employees; state and local government employers are covered regardless of their size. Federal employees are covered under separate ADEA provisions. The Older Workers Benefit Protection Act added a section to the ADEA (29 U.S.C. 626(f)) that says a release of age discrimination claims is valid only if it is "knowing and voluntary". At a minimum, the agreement must:
- be written in a manner calculated to be understood by the employee, which in practice means plain language;
- refer specifically to rights or claims under the ADEA;
- not waive rights or claims that arise after the employee signs;
- give the employee something of value in addition to anything the employee is already entitled to;
- advise the employee in writing to consult an attorney before signing;
- give the employee at least 21 days to consider the agreement, or at least 45 days if it is offered in connection with an exit incentive or other employment termination program offered to a group or class of employees; and
- give the employee at least 7 days after signing to revoke it, with the agreement not becoming effective or enforceable until that period has expired.
For an exit incentive or other group termination program, the employer must provide the required written disclosures at the start of the 45-day consideration period, in language the average eligible employee can understand. The disclosures identify the group covered, eligibility factors and time limits, the job titles and ages of everyone eligible or selected, and the ages of everyone in the same job classification or organizational unit who is not eligible or selected. Under the EEOC's regulation (29 C.F.R. 1625.22), the employee may sign before the consideration period ends, but the employer may not pressure the employee into doing so, and the 7-day revocation period cannot be shortened. If the agreement does not meet these requirements, the release of age claims may be invalid even if the rest of the agreement stands.
Confidentiality and non-disparagement: the NLRA and McLaren Macomb
The National Labor Relations Act protects the right of most private-sector employees to act together about their working conditions, including discussing them with co-workers and others. It does not cover supervisors or managers. In McLaren Macomb, 372 NLRB No. 58 (February 2023), the National Labor Relations Board held that an employer violated the Act simply by offering non-supervisory employees severance agreements with broad clauses that barred them from disclosing the agreement's terms to anyone and from making any statement that could disparage the employer. In February 2025, the NLRB's acting General Counsel rescinded GC 23-05, the previous General Counsel's guidance memo on the decision. That rescission did not itself overrule the Board's decision; check the decision's current status because the Board can change its precedent. For employees covered by the Act, the safer course is to keep confidentiality and non-disparagement clauses narrow and to include an express carve-out for their rights under the Act.
Sexual harassment and assault: the Speak Out Act
The federal Speak Out Act (December 2022) makes non-disclosure and non-disparagement clauses that were agreed to before a sexual assault or sexual harassment dispute arose unenforceable in that dispute. It does not apply to clauses agreed after a dispute has arisen, but several states restrict confidentiality about harassment, discrimination or other unlawful conduct in separation and settlement agreements. California, for example, requires separation agreements that restrict disclosure to state that the employee may still discuss or disclose information about unlawful acts in the workplace, and requires the employer to tell the employee of the right to consult an attorney and to allow at least five business days to consider the agreement (Cal. Gov. Code section 12964.5). Check the law of the state where the employee works.
Rights a severance agreement cannot take away
- Agency charges and investigations. An employee cannot give up the right to file a charge with the Equal Employment Opportunity Commission (EEOC) or a state or local fair employment agency, or to take part in an agency investigation. The ADEA says so expressly (29 U.S.C. 626(f)(4)), and the EEOC takes the same position for the other laws it enforces. The agreement can, however, generally waive the employee's right to recover money personally from the employer in such a charge.
- Whistleblowing to the SEC. SEC Rule 21F-17 bars any agreement that impedes a person from communicating with the SEC about a possible securities law violation.
- Federal minimum wage and overtime claims. Courts generally do not enforce a private release of claims under the Fair Labor Standards Act without supervision by the Department of Labor or approval by a court, although some federal courts enforce private settlements of genuine disputes over hours worked.
- Unemployment and workers' compensation. State laws generally do not allow an employee to waive unemployment insurance benefits or workers' compensation benefits by private agreement. Whether a former employee qualifies for unemployment, and whether severance pay delays or reduces benefits, depends on state law.
- Future claims and vested benefits. A release covers claims up to the date of signing, not claims that arise later, and it does not usually take away benefits that have already vested under a retirement plan.
- Trade secret whistleblower immunity. Under the Defend Trade Secrets Act (18 U.S.C. 1833(b)), an individual is immune from trade secret liability for disclosing a trade secret in confidence to a government official or an attorney solely to report or investigate a suspected violation of law, or in a court filing made under seal. Employers that want to keep the right to recover exemplary damages and attorney fees under that Act from an employee must give notice of this immunity in agreements governing confidential information.
Tax
Severance pay is wages. It is subject to income tax withholding, and the US Supreme Court held in United States v. Quality Stores (2014) that severance payments are also subject to FICA taxes. Payments spread over time, or that depend on a release that could be signed in one tax year or the next, can raise issues under Internal Revenue Code section 409A, so have the payment timing checked.
Free severance agreement template (sample text)
Copy the text below into Word and fill in the brackets. It is an original, general US sample of a severance agreement and general release for a single employee, including the extra terms for an employee aged 40 or over. It is a starting point, not a finished agreement: it is not tailored to any state, does not cover a group layoff (which needs the longer consideration period and the written disclosures described above), and should be reviewed by employment counsel before it is offered.
Sample: severance agreement and general release (fill-in template)
SEVERANCE AGREEMENT AND GENERAL RELEASE
This Severance Agreement and General Release (this "Agreement") is between [Employer legal name], a [State] [entity type] (the "Company"), and [Employee full name] ("Employee").
1. Separation Date. Employee's employment with the Company [ends / ended] on [date] (the "Separation Date"). [The Company and Employee have agreed that Employee's departure will be described as [a layoff / a resignation / a mutual decision].]
2. Final Pay and Benefits Owed Regardless of This Agreement. Whether or not Employee signs this Agreement, the Company will pay Employee all wages earned through the Separation Date [and all accrued, unused vacation], less applicable withholdings, by the date required by applicable law, and will reimburse properly submitted business expenses under Company policy. Employee's rights under the Company's benefit plans are governed by those plans, and Employee will receive information about continuing group health coverage under COBRA or applicable state law, if eligible.
3. Severance Benefits. If Employee signs and returns this Agreement within the time allowed in Section 11, does not revoke it, and complies with it, the Company will: (a) pay Employee severance totaling $[amount], equal to [number] weeks of Employee's base salary, less applicable withholdings, [in a lump sum / in equal installments on the Company's regular paydays over [number] weeks], beginning on the first regular payday after the Effective Date; and (b) [if Employee timely elects COBRA continuation coverage, pay [or reimburse] the employer portion of the premiums for Employee [and Employee's covered dependents] for [number] months or until Employee becomes eligible for group health coverage through another employer, whichever is earlier]. Employee agrees that these benefits are in addition to anything of value to which Employee is already entitled.
4. General Release. In exchange for the severance benefits, Employee, for Employee and Employee's heirs and assigns, releases the Company and its parents, subsidiaries, affiliates, and their current and former officers, directors, employees and agents (the "Released Parties") from all claims, known or unknown, that Employee has or may have against any of them arising at any time up to the date Employee signs this Agreement, including claims arising out of Employee's employment or its termination. This includes, to the fullest extent permitted by law, claims under Title VII of the Civil Rights Act of 1964, the Americans with Disabilities Act, the Age Discrimination in Employment Act and the Older Workers Benefit Protection Act, the Family and Medical Leave Act, the Employee Retirement Income Security Act (except claims for vested benefits), [list applicable state and local laws], and claims for breach of contract, wrongful discharge, or other common law claims.
5. Claims Not Released. This Agreement does not release: (a) claims that arise after the date Employee signs it; (b) rights to vested benefits under any retirement or other benefit plan; (c) claims for unemployment insurance or workers' compensation benefits; (d) rights to indemnification or insurance coverage Employee has as a current or former officer or employee; (e) claims to enforce this Agreement; or (f) any claim that cannot be released by private agreement under applicable law.
6. Protected Rights. Nothing in this Agreement prevents Employee from: (a) filing a charge or complaint with, communicating with, providing information to, or participating in an investigation or proceeding by the Equal Employment Opportunity Commission, the National Labor Relations Board, the Securities and Exchange Commission, the Occupational Safety and Health Administration, or any other federal, state or local government agency; (b) receiving an award from a government agency for information provided to it; (c) discussing or disclosing information about unlawful acts in the workplace, such as harassment or discrimination or any other conduct Employee has reason to believe is unlawful; (d) exercising any rights Employee may have under Section 7 of the National Labor Relations Act; or (e) testifying truthfully in any legal proceeding. Employee waives any right to recover individual monetary relief from the Released Parties in any charge or lawsuit covered by the release in Section 4, except where that waiver is prohibited by law. Under 18 U.S.C. 1833(b), Employee will not be held criminally or civilly liable under any federal or state trade secret law for disclosing a trade secret in confidence to a government official or an attorney solely for the purpose of reporting or investigating a suspected violation of law, or in a complaint or other document filed under seal in a lawsuit or other proceeding. If Employee brings a lawsuit alleging retaliation by the Company for reporting a suspected violation of law, Employee may disclose trade secrets to Employee's attorney and use them in that proceeding, provided that documents containing trade secrets are filed under seal and the trade secrets are not otherwise disclosed except by court order.
7. Return of Property. By [date], Employee will return all Company property in Employee's possession, including [laptop, phone, badge, keys], documents and data, and will not keep copies. [The Company will allow Employee to copy personal files, such as personal contacts and pay and benefits records, under the supervision of [name or role].]
8. Confidential Information and Existing Agreements. Subject to Section 6, Employee will continue to keep the Company's confidential information confidential. [The [title and date of Employee's confidentiality, invention assignment or restrictive covenant agreement] remains in effect according to its terms.]
9. Non-Disparagement and References. Subject to Section 6, Employee will not make statements about the Company or its products or services that Employee knows to be false and that are made to damage the Company's reputation. The Company will instruct [names or roles] not to make disparaging statements about Employee. The Company will respond to reference requests directed to [name, role or department] by confirming only Employee's dates of employment and last job title [and, if Employee authorizes it in writing, final base salary].
10. Cooperation. For [number] months after the Separation Date, Employee will reasonably cooperate with the Company on the transition of Employee's work and on any investigation or legal proceeding about matters within Employee's knowledge, at mutually convenient times. The Company will reimburse reasonable pre-approved expenses [and pay Employee $[rate] per hour for time spent after [number] hours]. Nothing in this section requires Employee to give anything other than truthful information or testimony.
11. Time to Consider; Revocation; Effective Date. Employee acknowledges that: (a) this Agreement is written in a manner Employee understands; (b) the Company advises Employee in writing, through this Agreement, to consult an attorney of Employee's choosing before signing it; (c) Employee has [21] days after receiving this Agreement to consider it, and may sign it sooner only voluntarily; changes to this Agreement, whether or not material, do not restart that period [unless required by applicable law]; (d) Employee may revoke this Agreement within 7 days after signing it by delivering written notice of revocation to [name, address and email], and the Agreement will not become effective or enforceable until that period has expired without revocation; and (e) this Agreement becomes effective on the eighth day after Employee signs it, if Employee has not revoked it (the "Effective Date").
12. No Admission. This Agreement is not an admission of wrongdoing or liability by the Company or by Employee.
13. Taxes. The Company will withhold taxes from payments under this Agreement as required by law. [The Company and Employee intend that payments under this Agreement be exempt from, or comply with, Section 409A of the Internal Revenue Code.]
14. General. This Agreement is governed by the laws of the State of [state], without regard to its conflict of laws rules. It is the entire agreement between the Company and Employee about Employee's separation and replaces any earlier discussions about it, except for the agreements kept in effect by Section 8. It may be changed only in a writing signed by both. If a court finds any provision unenforceable, the rest of the Agreement remains in effect. It may be signed electronically and in counterparts.
EMPLOYEE HAS READ THIS AGREEMENT, UNDERSTANDS IT, AND SIGNS IT VOLUNTARILY.
[COMPANY LEGAL NAME] By: ______________________________ Name: [__________] Title: [__________] Date: [______]
EMPLOYEE Signature: ______________________________ Name: [__________] Date: [______]
Not legal advice. This sample is not tailored to any state, industry or employee. State and local laws may require different or additional terms, such as a longer time to consider, specific wording about unlawful workplace conduct, or limits on confidentiality. If the employee is under 40, the OWBPA terms in Sections 4 and 11 are not required by federal law, but many employers still give time to consider. Have employment counsel review the agreement before it is offered.
Mutual termination agreements
A mutual termination agreement is a separation agreement in which the employer and the employee both agree that the employment will end, rather than one side firing or resigning. Both sides may prefer it: the employee can describe the departure as agreed, and the employer gets a planned handover and, if it pays severance, a release. The same rules apply as for any severance agreement. An agreed departure does not by itself decide whether the employee can get unemployment benefits; the state agency decides that under state law. If the employment contract requires notice or pays benefits on termination, say how the agreement deals with them.
Common mistakes in severance agreements
- Conditioning final pay on the release. Earned wages and any required vacation payout are owed anyway. Severance must be extra.
- Missing OWBPA terms for an employee aged 40 or over. No ADEA reference, no written advice to consult an attorney, a short consideration period, or no 7-day revocation period can make the release of age claims invalid.
- Using the single-employee timeline for a group layoff. A group termination program needs 45 days and the written disclosures about who was selected.
- Overbroad confidentiality and non-disparagement. Clauses with no carve-out for agency charges, whistleblowing, unlawful workplace conduct or NLRA rights may be unenforceable, or unlawful to offer.
- Releasing claims that cannot be released. Promising to give up unemployment, workers' compensation or the right to file an EEOC charge does not work and can undermine the rest of the agreement.
- Ignoring earlier agreements and plans. An entire agreement clause that accidentally cancels a confidentiality or invention assignment agreement, or severance terms that conflict with a severance plan or equity plan.
- Payment timing problems. Installments or release deadlines that span two tax years without a section 409A review.
How to draft or review a severance agreement in Word with LexDraft
LexDraft is a Word add-in from Microsoft AppSource. It opens as a side panel in Word 365 (Windows and Mac), Word 2021 and Word on the web, so the severance agreement stays in the document you are already editing.
Describe the agreement
Open LexDraft in Word and describe the severance agreement in plain English: the employer and employee, the separation date, the severance pay and benefits, whether the employee is 40 or over, and the state where the employee works. LexDraft asks a few clarifying questions, then writes a first draft into your document as editable Word text.
Review it against the governing law
To review a severance agreement you drafted, or one you were given, pick the governing state and run a review. LexDraft has four built-in playbooks (NDA, SaaS MSA, DPA and services agreement) and no dedicated severance or employment playbook, so a severance agreement runs as a general review. Findings are graded Critical, High, Medium or Low, and LexDraft flags standard terms that are missing.
Check and accept the redlines
Run the defined-term and cross-reference checks, which are rule-based and run without AI. Accept or reject each proposed redline; accepted changes land as native Word tracked changes. Nothing changes in your document until you accept a redline.
What LexDraft does not do: it does not give legal advice, tell an employee whether to sign, decide whether a release is enforceable in your state, or collect signatures. You check every output, including the time periods and the claims released, before the agreement is offered or signed.
Frequently Asked Questions About Severance Agreements
What is a severance agreement?
A severance agreement is a written agreement between an employer and a departing employee. The employer provides pay or benefits the employee would not otherwise receive, such as a number of weeks of pay or paid COBRA premiums, and the employee usually releases legal claims against the employer and agrees to terms such as returning company property.
Is an employer required to offer severance pay?
Generally not for private employers under federal law. According to the US Department of Labor, severance pay is generally a matter of agreement between an employer and an employee. An employer may have to pay it because of an employment contract, an offer letter, a severance plan or policy, or a collective bargaining agreement, and a few state laws require it in specific situations, such as certain mass layoffs in New Jersey.
What is the difference between a severance agreement and a separation agreement?
The names are often used for the same document. A separation agreement records the terms on which employment ends and may or may not include severance pay. A severance agreement provides severance pay or benefits, usually in exchange for a release of claims. A settlement agreement, by contrast, resolves a dispute that has already been raised.
How long do you have to sign a severance agreement?
For a release of age discrimination claims by an employee aged 40 or over, the Older Workers Benefit Protection Act requires at least 21 days to consider the agreement (45 days in a group termination program) and 7 days after signing to revoke it. For other employees there is no federal minimum, but some states set one; California, for example, requires at least five business days for separation agreements covered by Government Code section 12964.5.
Can a severance agreement stop you from filing an EEOC charge?
No. An employee cannot give up the right to file a charge with the EEOC or a state or local fair employment agency, or to take part in an agency investigation. A severance agreement can generally waive the employee's right to recover money personally from the employer in such a charge.
Can a severance agreement include confidentiality and non-disparagement clauses?
Yes, within limits. In McLaren Macomb (2023), the NLRB held that offering non-supervisory employees severance agreements with broad confidentiality and non-disparagement clauses violated the National Labor Relations Act; check the decision's current status. The Speak Out Act makes such clauses agreed before a sexual harassment or assault dispute unenforceable in that dispute, some states add their own limits, and no clause can stop an employee from reporting to a government agency.
Can you get unemployment benefits if you sign a severance agreement?
It depends on state law. State laws generally do not allow an employee to waive unemployment benefits by private agreement, so a severance agreement should not try to. Whether a former employee qualifies, and whether severance pay delays or reduces benefits, is decided by the state unemployment agency.
Is severance pay taxable?
Yes. Severance pay is wages subject to income tax withholding, and in United States v. Quality Stores (2014) the US Supreme Court held that severance payments are also subject to FICA taxes. Payments spread over time can also raise issues under Internal Revenue Code section 409A.
Reviewing a severance agreement someone else drafted?
Draft and review a severance agreement in Word
Describe the agreement, get a first draft in your document, then review it with tracked-change redlines. You stay in Word, and you decide what changes.
Install LexDraft for WordThis page is general information, not legal advice. LexDraft does not give legal advice; have employment counsel check every severance agreement against federal, state and local law. Spotted something out of date? Email support@lexdraft.ai and we will fix it.