What to include in a severance agreement

Published 3 October 2026 · Updated 4 October 2026 · Hiring and HR letters

A severance agreement pays a departing employee something they are not otherwise owed, in exchange for a release of legal claims. No US federal law requires severance, but when you offer it with a release, the release only holds if the agreement is done properly.

What to include

1. The separation date, and a statement that final pay and other amounts the law requires are paid whether or not the employee signs.
2. The severance: the amount, lump sum or instalments, and when it is paid. Severance is treated as wages, so taxes are withheld.
3. Benefits: for example, paying health continuation (COBRA) premiums for a set number of months.
4. The release of claims the employee gives up, and the claims that are not released.
5. Protected rights: a clear statement that the employee can still contact government agencies.
6. Time to consider the agreement, advice to consult a lawyer, and, for employees aged 40 and over, a right to revoke.
7. Other terms: return of company property, confidentiality, non-disparagement, a neutral reference, and cooperation in any later legal matter.

Employees aged 40 and over

To release claims under the Age Discrimination in Employment Act, the Older Workers Benefit Protection Act requires the agreement to:

• be written in a way the employee can understand, and refer to the Age Discrimination in Employment Act by name;
• not waive claims that arise after the employee signs;
• give something of value beyond what the employee is already owed;
• advise the employee in writing to consult a lawyer;
• give at least 21 days to consider it, or 45 days when it is offered to a group, with information about who was selected and their ages; and
• allow 7 days after signing to revoke it.

Miss one of these and the age discrimination release may not hold, even if the rest of the agreement does.

What a release cannot take away

An employee cannot give up the right to file a charge with the Equal Employment Opportunity Commission or another agency, or to take part in an investigation; the release can only waive their right to recover money for released claims. Claims for unemployment and workers' compensation benefits, vested retirement benefits and claims that arise later generally cannot be released either. Say so plainly in the agreement: overbroad confidentiality or non-disparagement terms can make parts of it unenforceable.

State rules to check

Some states add requirements. California, for example, requires specific wording to release unknown claims, and limits confidentiality and non-disparagement terms about unlawful workplace conduct. Check the rules where the employee works.

Free templates

The free severance agreement and release covers each item above, including the 21-day and 7-day periods for employees 40 and over, and builds the agreement in your browser. Use the deadline calculator to work out the review and revocation dates. For the separation itself, see how to write a termination letter and the termination letter template.

General information, not legal advice. Have any severance agreement reviewed by an employment lawyer before it is signed.

Sources

• 29 U.S.C. § 626(f): Older Workers Benefit Protection Act waiver requirements
• U.S. EEOC: Understanding waivers of discrimination claims in employee severance agreements
• California Civil Code § 1542 (release of unknown claims)
• California Government Code § 12964.5 (separation agreement restrictions)

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• How to write a warning letter to an employee (free template)
• How to write a termination letter (with a free template)
• How to write a two weeks notice letter (free template)
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