Severance Agreement Template 2025
Professional severance agreement template with comprehensive guide. Learn what a severance agreement is, how to fill it out, and download our template designed by legal experts for employment separations, terminations, and HR documentation.
Download TemplateWhat is a Severance Agreement?
A severance agreement is a legally binding contract between an employer and employee that outlines the terms and conditions of employment separation. It establishes the severance benefits the employee will receive, such as severance pay and continued health benefits, in exchange for the employee's agreement to certain post-employment obligations, including releasing legal claims against the employer, maintaining confidentiality, and adhering to non-compete restrictions. Severance agreements protect both parties during the employment separation process and provide a structured framework for ending the employment relationship.
Severance agreements are essential HR documents that help employers manage workforce reductions, restructuring, and individual terminations while minimizing legal risk and maintaining positive relationships with departing employees. They provide departing employees with financial security and continued benefits during their transition period, while giving employers legal protection through releases of claims and confidentiality provisions. A well-crafted severance agreement benefits both parties by creating certainty, reducing litigation risk, and facilitating a smooth transition.
📋 Key Components of a Severance Agreement
- Severance pay - compensation amount and payment schedule
- Benefits continuation - health insurance and other benefit extensions
- Release of claims - employee waiver of legal claims against employer
- Confidentiality provisions - protection of company confidential information
- Non-compete clauses - restrictions on future employment
- Non-solicitation provisions - restrictions on soliciting employees or customers
- Cooperation requirements - post-employment assistance obligations
Types of Severance Situations
| Separation Type | Circumstances | Typical Benefits | Legal Considerations |
|---|---|---|---|
| Layoffs/Reduction in Force | Economic downturn, restructuring | Enhanced severance packages | WARN Act compliance, group releases |
| Voluntary Separation | Early retirement, buyouts | Voluntary separation incentives | Age discrimination considerations |
| Executive Termination | Leadership changes, mergers | Golden parachute provisions | Change in control agreements |
| Performance-Based Termination | Poor performance, misconduct | Limited severance benefits | Documentation requirements |
| Mutual Separation | Negotiated departure | Customized packages | Settlement of disputes |
Mass Layoffs and Workforce Reduction
- WARN Act Compliance: 60-day advance notice for mass layoffs affecting 50+ employees
- Group Release Programs: Standardized severance packages for multiple employees
- Enhanced Benefits: Generous packages to maintain goodwill and company reputation
- Outplacement Services: Career transition assistance and job search support
- Benefits Bridging: Extended health insurance and retirement plan access
- Selection Criteria: Objective, non-discriminatory criteria for layoff decisions
Executive and Senior Management Severance
- Change in Control: Enhanced severance for termination following mergers or acquisitions
- Golden Parachutes: Substantial severance packages for top executives
- Equity Acceleration: Immediate vesting of stock options and restricted stock
- Extended Benefits: Longer benefit continuation and executive perquisites
- Non-Compete Compensation: Additional pay for extended non-compete periods
- Tax Gross-Ups: Company payment of excise taxes on excessive severance
Voluntary Separation Programs
- Early Retirement Incentives: Enhanced pension benefits and bridge insurance
- Voluntary Buyouts: Attractive packages to encourage voluntary departures
- Workforce Optimization: Reducing headcount without involuntary terminations
- Skills-Based Separation: Targeting specific roles or departments
- Limited Windows: Time-limited offers to create decision urgency
- Age Discrimination Protection: Compliance with Older Workers Benefit Protection Act
✅ Severance Agreement Benefits
- For Employers: Legal protection, reduced litigation risk, maintain reputation
- For Employees: Financial security, benefit continuation, transition support
- Mutual Benefits: Smooth transitions, preserved relationships, closure
- Risk Mitigation: Structured approach to employment separations
- Compliance: Adherence to employment laws and regulations
Essential Severance Agreement Terms
Severance Compensation and Benefits
- Severance Pay Amount: Total compensation based on salary, tenure, and position level
- Payment Schedule: Lump sum, installments, or salary continuation
- Bonus Payments: Prorated annual bonuses and incentive compensation
- Vacation Accrual: Payment for unused vacation and paid time off
- Commission Payments: Earned but unpaid commissions and sales incentives
- Expense Reimbursement: Outstanding business expenses and advances
Benefits Continuation and Coverage
- Health Insurance: COBRA continuation and employer subsidies
- Life Insurance: Temporary continuation of life insurance coverage
- Disability Insurance: Short-term and long-term disability benefit continuation
- Retirement Benefits: 401(k) access and pension plan treatment
- Stock Options: Vesting acceleration and exercise periods
- Executive Benefits: Car allowances, club memberships, and perquisites
Release of Claims and Legal Waivers
- General Release: Broad waiver of employment-related claims
- Age Discrimination Claims: ADEA waiver with required disclosures
- Civil Rights Claims: Waiver of discrimination and harassment claims
- Wage and Hour Claims: Release of overtime and compensation claims
- Retained Rights: Claims that cannot be waived by law
- Future Claims: Scope of release for unknown future claims
Post-Employment Restrictions and Obligations
- Non-Compete Clauses: Restrictions on working for competitors
- Non-Solicitation: Prohibitions on soliciting employees and customers
- Confidentiality: Protection of trade secrets and confidential information
- Non-Disparagement: Restrictions on negative comments about the company
- Return of Property: Company equipment, documents, and materials
- Cooperation: Assistance with litigation and transition matters
Review Periods and Execution Requirements
- Review Period: 21 days to review agreement (45 days for group programs)
- Revocation Period: 7 days after signing to revoke acceptance
- Legal Consultation: Encouragement to seek independent legal advice
- Required Disclosures: Information about group selection criteria
- Consideration: Benefits beyond what employee is already entitled to receive
- Enforceability: Compliance with state and federal law requirements
Special Circumstances and Exceptions
- Cause Termination: Reduced or eliminated severance for misconduct
- Resignation: Voluntary termination impact on severance eligibility
- Death and Disability: Special provisions for death or disability separation
- Change in Control: Enhanced benefits for merger or acquisition terminations
- Mitigation: Reduction of severance for new employment income
- Clawback Provisions: Recovery of severance for breach of agreement
⚠️ Legal Compliance Requirements
- Older Workers Benefit Protection Act compliance for workers over 40
- State-specific requirements for severance agreements and non-competes
- WARN Act notice requirements for mass layoffs
- Tax implications of severance payments and benefits
- Unemployment compensation eligibility considerations
- Professional legal review recommended for complex situations
How to Fill Out a Severance Agreement: Step-by-Step Guide
Identify: Employer and employee information and circumstances of separation.
- Complete employer company information and legal entity details
- Employee identification including full name, position, and employment dates
- Circumstances of separation (layoff, restructuring, mutual agreement)
- Effective date of termination and agreement execution date
- Reason for separation and voluntary vs. involuntary classification
Determine: All forms of severance compensation and benefit continuation.
- Calculate severance pay based on salary, tenure, and company policy
- Determine payment schedule (lump sum vs. installments)
- Include accrued vacation, bonuses, and outstanding compensation
- Define health insurance continuation and COBRA subsidies
- Address stock options, retirement benefits, and other perquisites
Include: Comprehensive release of legal claims and required disclosures.
- Draft broad release covering all employment-related claims
- Include specific ADEA waiver language for employees over 40
- List retained rights that cannot be waived by law
- Add required disclosures for group termination programs
- Specify consideration being provided in exchange for release
Define: Non-compete, confidentiality, and other post-employment obligations.
- Include enforceable non-compete clauses based on state law
- Add non-solicitation restrictions for employees and customers
- Define confidentiality and trade secret protection obligations
- Include non-disparagement provisions for both parties
- Specify return of company property and equipment
Ensure: Compliance with legal requirements for review and revocation.
- Provide 21-day review period (45 days for group programs)
- Include 7-day revocation period after agreement execution
- Encourage employee to consult with independent legal counsel
- Include required language about revocation procedures
- Specify when severance benefits will commence after revocation period
Include: Governing law, enforcement mechanisms, and proper execution.
- Add governing law and jurisdiction clauses
- Include severability and modification provisions
- Define enforcement mechanisms and dispute resolution
- Add tax acknowledgments and withholding requirements
- Obtain proper signatures and maintain executed copies
⚠️ Legal Review and Compliance Verification
Severance agreements involve complex employment law issues and significant financial commitments. They must comply with federal and state employment laws, including age discrimination protections, wage and hour laws, and non-compete restrictions. Professional legal review is essential to ensure enforceability, compliance, and protection of both parties' interests. Consider tax implications and coordinate with HR and payroll systems for proper implementation.
Severance Calculation Methods
Base Salary Calculation Methods
- Weeks of Pay Formula: Standard multiple of weeks based on tenure (e.g., 2 weeks per year)
- Months of Salary: Payment of full monthly salary for specified number of months
- Graduated Scales: Increasing severance with longer tenure or higher positions
- Minimum/Maximum Caps: Floor and ceiling amounts regardless of calculated formula
- Salary Continuation: Regular payroll payments for specified period
- Lump Sum Payments: Single payment of entire severance amount
Position and Tenure-Based Factors
- Executive Multipliers: Enhanced severance for senior management positions
- Long-Service Recognition: Additional benefits for employees with extensive tenure
- Performance Adjustments: Modifications based on recent performance ratings
- Department-Specific Policies: Different formulas for various business units
- Union Contract Requirements: Collectively bargained severance provisions
- Geographic Considerations: Regional variations in severance practices
Additional Compensation Components
- Bonus Proration: Partial annual bonuses based on time worked
- Commission Payments: Earned but unpaid sales commissions
- Incentive Compensation: Long-term incentive plan payouts
- Overtime Calculations: Regular overtime pay included in severance base
- Shift Differentials: Premium pay for non-standard work schedules
- Foreign Assignment Pay: Expatriate allowances and premium pay
Benefits Valuation and Continuation
- COBRA Subsidies: Employer payment of health insurance premiums
- Life Insurance Continuation: Temporary coverage extension value
- Retirement Plan Contributions: Continued 401(k) matching or contributions
- Executive Benefits: Car allowances, club memberships, financial planning
- Stock Option Acceleration: Value of accelerated vesting
- Vacation Buyout: Payment for unused paid time off
Industry and Market Benchmarking
- Industry Standards: Comparison with sector-specific practices
- Market Surveys: Regional and national severance benchmarks
- Peer Company Analysis: Competitive severance package comparison
- Economic Conditions: Adjustment for labor market conditions
- Company Size Factors: Variations based on organization size
- Public Company Requirements: SEC disclosure and shareholder considerations
Tax and Legal Considerations
- Tax Withholding: Federal and state tax withholding on severance payments
- FICA Taxes: Social Security and Medicare tax implications
- Supplemental Pay Rates: Higher withholding rates for lump sum payments
- Section 409A Compliance: Deferred compensation rules for executives
- Golden Parachute Taxes: Excise taxes on excessive executive severance
- State Law Variations: Different state requirements and restrictions
💡 Severance Calculation Best Practices
- Establish clear, written severance policies and calculation methods
- Ensure consistency and non-discriminatory application across employees
- Consider total cost including benefits and tax implications
- Benchmark against industry standards and competitive practices
- Document rationale for severance decisions and calculations
- Coordinate with legal, HR, and finance teams for proper implementation
Legal Protections and Risk Management
Release of Claims and Legal Waivers
- Comprehensive Release: Broad waiver covering all potential employment claims
- Specific Claim Types: Explicit coverage of discrimination, harassment, and wage claims
- ADEA Compliance: Special requirements for age discrimination waivers
- Knowing and Voluntary Standard: Evidence of informed decision-making
- Retained Rights: Claims that cannot be legally waived
- Future Conduct: Scope of release for post-agreement conduct
Non-Compete and Restrictive Covenants
- Geographic Scope: Reasonable territorial limitations based on business needs
- Time Limitations: Appropriate duration based on position and industry
- Scope of Activities: Specific activities and roles restricted
- Consideration Requirements: Adequate compensation for non-compete restrictions
- Blue Pencil Doctrine: Judicial modification of overly broad restrictions
- State Law Variations: Different enforceability standards by jurisdiction
Confidentiality and Trade Secret Protection
- Confidential Information Definition: Comprehensive scope of protected information
- Trade Secret Protection: Specific protection for proprietary business information
- Return of Materials: All company documents and electronic information
- Ongoing Obligations: Perpetual confidentiality requirements
- Third-Party Information: Protection of customer and vendor data
- Disclosure Exceptions: Legal requirements and permitted disclosures
Non-Solicitation and Non-Recruitment
- Employee Solicitation: Restrictions on recruiting former colleagues
- Customer Protection: Prohibitions on soliciting company clients
- Vendor Relationships: Protection of supplier and partner relationships
- Direct and Indirect Contact: Broad coverage of solicitation methods
- Business Opportunity Protection: Restrictions on pursuing company prospects
- Enforcement Mechanisms: Remedies for violations including injunctive relief
Cooperation and Transition Obligations
- Litigation Cooperation: Assistance with legal proceedings and investigations
- Knowledge Transfer: Documentation and training for replacements
- Client Transition: Professional handover of customer relationships
- Ongoing Availability: Reasonable accessibility for questions and issues
- Document Preservation: Retention of relevant business records
- Professional Conduct: Maintaining appropriate business relationships
Enforcement and Remedies
- Injunctive Relief: Court orders to prevent ongoing violations
- Monetary Damages: Financial compensation for agreement breaches
- Severance Clawback: Recovery of payments for material violations
- Legal Fees: Responsibility for enforcement costs and attorney fees
- Liquidated Damages: Pre-established penalty amounts for specific breaches
- Alternative Dispute Resolution: Mediation and arbitration procedures
⚠️ Common Legal Pitfalls and Compliance Issues
- Invalid age discrimination waivers lacking required OWBPA compliance
- Overly broad non-compete clauses unenforceable under state law
- Insufficient consideration for post-employment restrictions
- Inadequate review periods and revocation rights
- Failure to comply with WARN Act notice requirements
- Tax withholding and reporting errors on severance payments
Best Practices for Severance Agreements
Policy Development and Documentation
- Written Policies: Clear, comprehensive severance policies and procedures
- Consistent Application: Non-discriminatory implementation across all employees
- Regular Updates: Periodic review and revision to reflect legal changes
- Management Training: Education for supervisors and HR personnel
- Documentation Standards: Proper record-keeping and decision documentation
- Legal Review: Regular legal audit of policies and practices
Communication and Employee Relations
- Transparent Communication: Clear explanation of severance terms and process
- Compassionate Approach: Sensitive handling of difficult employment separations
- Professional Delivery: Respectful and dignified termination meetings
- Support Resources: Outplacement services and career transition assistance
- Manager Preparation: Training for supervisors on conducting termination meetings
- Follow-up Support: Ongoing assistance during transition period
Legal Compliance and Risk Mitigation
- Employment Law Compliance: Adherence to federal and state employment regulations
- Anti-Discrimination Measures: Protection against discriminatory termination practices
- Documentation Requirements: Thorough records supporting termination decisions
- Legal Counsel Consultation: Professional legal review for complex situations
- Audit and Review: Regular assessment of severance practices and outcomes
- Insurance Coordination: Employment practices liability insurance considerations
Financial and Administrative Management
- Budget Planning: Financial planning for severance costs and obligations
- Payroll Coordination: Proper processing of severance payments and tax withholding
- Benefits Administration: Seamless transition of health insurance and other benefits
- Record Keeping: Comprehensive documentation of all severance agreements
- Cost Control: Monitoring and management of severance program expenses
- Reporting Requirements: Compliance with financial disclosure obligations
✅ Severance Agreement Success Factors
- Clear policies and consistent application across all employees
- Appropriate legal protections balanced with fair employee treatment
- Compliance with all applicable employment laws and regulations
- Professional communication and compassionate implementation
- Regular legal review and policy updates
- Comprehensive documentation and record-keeping practices
Frequently Asked Questions About Severance Agreements
Generally, employers are not legally required to provide severance pay unless it's specified in an employment contract, union agreement, or company policy. However, many employers offer severance packages to reduce legal risks, maintain goodwill, and attract top talent. The WARN Act requires advance notice for mass layoffs but doesn't mandate severance pay.
Severance pay varies widely based on factors including tenure, position level, company policy, and industry standards. Common formulas range from one to four weeks of pay per year of service, with minimums and maximums. Executive packages may be more generous, while entry-level positions might receive minimal severance or none at all.
Yes, severance agreements are often negotiable, especially for senior positions or unique circumstances. You may be able to negotiate higher severance pay, longer benefit continuation, modification of restrictive covenants, or additional transition support. However, employers may have limited flexibility based on company policies and legal requirements.
You cannot be forced to sign a severance agreement, but refusing to sign typically means forfeiting the severance benefits offered. You would still be entitled to any final wages, accrued vacation, and statutory benefits like unemployment compensation. However, you would retain the right to pursue legal claims against your employer.
Yes, it's highly recommended to have an employment attorney review your severance agreement, especially if it includes significant financial benefits or restrictive covenants. An attorney can explain the legal implications, identify potential issues, and help negotiate better terms. Many severance agreements specifically encourage legal consultation.
Severance payments may affect the timing of unemployment benefits but typically don't disqualify you entirely. Some states delay unemployment benefits during periods when you receive severance pay, while others allow concurrent benefits. The specific impact depends on your state's laws and how the severance is structured and paid.
Enforceability of non-compete clauses varies significantly by state and depends on factors like geographic scope, duration, and the nature of restrictions. Some states ban or severely limit non-competes, while others enforce reasonable restrictions. Courts typically require that non-competes protect legitimate business interests and are supported by adequate consideration.
If your employer breaches the severance agreement by failing to make payments or provide promised benefits, you may have legal recourse including the right to sue for damages. Document any breaches and consult with an employment attorney about your options, which may include recovering unpaid benefits, interest, and attorney fees.
Download Your Severance Agreement Template
Our comprehensive severance agreement template includes all the essential provisions you need to properly document employment separations and protect your organization from legal risks. The template is professionally drafted by employment law experts and can be customized for various termination scenarios.
What's Included in Our Template:
- Complete Agreement Structure: All essential sections and legal provisions
- Flexible Terms: Customizable for different types of separations
- Legal Compliance: OWBPA compliance and required disclosures
- Risk Management: Comprehensive release and restrictive covenant provisions
- Implementation Guide: Step-by-step instructions for customization
- Best Practices: Guidance on legal compliance and risk mitigation
💼 Template Features
- Covers all major severance agreement provisions and requirements
- Includes optional clauses for different separation scenarios
- Professional legal language with clear explanations
- Customizable for various industries and employee levels
- Regular updates to reflect current employment law changes
- Compatible with standard word processing software
⚠️ Important Legal Disclaimer
This template is provided for informational purposes only and does not constitute legal advice. Severance agreements involve complex employment law issues that vary by state and circumstance. While our templates are professionally prepared, every employment situation is unique and may require specific legal provisions. We strongly recommend consulting with a qualified employment attorney to ensure your severance agreement meets your specific needs and complies with applicable federal and state laws.