Free Severance Agreement Forms

What Is a Severance Agreement?

A severance agreement is a legally binding contract entered into at the end of an employment relationship, under which the employer agrees to provide the departing employee with consideration — typically cash severance, continued health benefits, outplacement assistance, and accelerated vesting of some equity awards — in exchange for the employee's general release of legal claims against the employer. The release is the heart of the agreement: it converts a potentially litigable dispute into a bilateral contract that delivers certainty to both parties. Severance agreements are used in individual terminations, reductions in force, executive separations, mutual departures, and plant closings, and they are the principal tool employers use to manage post- employment legal exposure.

Unlike the employment contract at the start of the relationship, the severance agreement is negotiated at a moment of maximum leverage for the employer and maximum vulnerability for the employee. For this reason, federal and state law impose a detailed procedural framework designed to protect departing workers from coercive or uninformed waivers. The centerpiece of that framework is the Older Workers Benefit Protection Act of 1990, which amended the Age Discrimination in Employment Act to require specific disclosures, consideration periods, and revocation rights for any severance agreement that includes a waiver of ADEA claims by an employee age 40 or older. Compliance with OWBPA is mandatory — failure to meet even one of its procedural requirements renders the ADEA waiver unenforceable, and a court will not blue-pencil an OWBPA defect.

Alongside OWBPA, the agreement must navigate a growing web of limitations on release scope. The Equal Employment Opportunity Commission has long held that employees cannot be required to waive the right to file a charge or cooperate with an EEOC investigation, and in 2023 the National Labor Relations Board in McLaren Macomb invalidated broad confidentiality and non-disparagement provisions in severance agreements on the ground that they chill Section 7 rights. The Speak Out Act (2022) and the Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act (2021) bar pre-dispute NDAs and arbitration clauses covering sexual assault and harassment claims, and a growing number of states (notably California, New York, New Jersey, Illinois, and Washington) have enacted parallel statutes reaching other workplace claims.

The economic core of the agreement is the consideration. To be valid under OWBPA, the severance consideration must be something the employee is not already entitled to receive — meaning it cannot consist solely of accrued wages, unused vacation, vested retirement benefits, or amounts already owed under an existing severance plan. The additional consideration may be cash (typically calculated as weeks of base pay per year of service), continued health insurance coverage through COBRA subsidies, outplacement services, accelerated vesting of equity, extended exercise windows for stock options, or waiver of clawback provisions. The amount and composition should be calibrated to the strength of the employee's potential claims, the employer's litigation exposure, and market practice.

Whether you are a human-resources director managing an individual termination, general counsel overseeing a reduction in force, an in-house labor lawyer advising on a plant closing under WARN, or a small-business owner parting ways with a long-tenured employee, our attorney-reviewed severance agreement templates give you a compliant starting point. Each template includes OWBPA-compliant waiver language, EEOC-approved release scope, the 21/45/7-day procedural framework, required carve-outs for agency cooperation and non-waivable claims, §409A-compliant payment timing, and state-specific language for California Civil Code §1542 and other jurisdictional requirements.

Severance Agreement Form Preview

The preview below shows the structure of a complete severance and release agreement. Each section maps directly to a requirement under federal or state law or to a commercially significant protective provision.

Severance Scenarios

Different separation events trigger different legal requirements. Choose the scenario that matches your situation to start with a template pre-configured for the applicable federal and state rules.

OWBPA & ADEA Waivers

The Older Workers Benefit Protection Act (29 U.S.C. §626(f)) is the single most important statute governing severance agreements in the United States. Enacted in 1990 in response to widespread abuses in corporate downsizing, OWBPA sets out seven mandatory requirements that any severance agreement including a waiver of ADEA rights must satisfy. The requirements are cumulative and strict: failure to comply with any one renders the ADEA waiver invalid, and the Supreme Court in Oubre v. Entergy Operations held that a noncompliant waiver is void from the outset even if the employee has cashed the severance check.

When severance is offered to a group of two or more employees in connection with an exit incentive program or other termination program, OWBPA imposes additional disclosure obligations. The employer must provide every employee age 40 or older with a written schedule describing the decisional unit, eligibility factors, time limits applicable to the program, and the job titles and ages of all individuals selected for the program as well as the ages of all individuals in the same decisional unit who were not selected. The disclosure must be accurate, complete, and delivered at the time the agreement is presented — not later. A defective disclosure voids the ADEA waiver even if the other six requirements are met.

Calculating Severance Consideration

Severance consideration must be meaningful — both to satisfy the OWBPA requirement of additional consideration and to incentivize the employee to accept the release. Market-practice formulas vary by industry, geography, role level, and tenure, but most employers use a weeks-per-year-of-service formula with floors and caps.

Beyond cash, severance packages typically include continuation of group health coverage (either through employer-paid COBRA for a defined period or a taxable cash stipend equivalent to the COBRA premium), outplacement services (career counseling, resume services, and job-search support, often from Lee Hecht Harrison or Right Management), accelerated vesting of some equity awards, extended post-termination exercise windows for vested stock options (commonly 90 days extended to 12 or 24 months), and waiver of certain contractual obligations such as signing-bonus clawbacks.

Scope of the Release

The release of claims is the core value-exchange of the severance agreement. It should be drafted as a general release with a specific list of statutes covered to satisfy the OWBPA requirement that the ADEA be "specifically" referenced. A typical release covers federal statutes including Title VII of the Civil Rights Act of 1964, the Age Discrimination in Employment Act, the Americans with Disabilities Act, the Family and Medical Leave Act, the Equal Pay Act, the Worker Adjustment and Retraining Notification Act, the Employee Retirement Income Security Act, the Genetic Information Nondiscrimination Act, the Uniformed Services Employment and Reemployment Rights Act, Section 1981, and Sections 503 and 504 of the Rehabilitation Act.

The release must also include carve-outs preserving the employee's non-waivable rights. At minimum, the carve-outs should preserve the right to file a charge with or participate in an investigation by the EEOC, NLRB, OSHA, SEC, or any other federal, state, or local agency; the right to receive a whistleblower award under the Dodd-Frank Act, the False Claims Act, the Sarbanes-Oxley Act, or similar statutes; vested retirement benefits under ERISA; workers' compensation claims; unemployment insurance; and claims that arise after the effective date of the agreement. The carve-out language should be prominent, not buried in boilerplate, to survive a McLaren Macomb challenge.

How to Create a Severance Agreement

Follow these eight steps to produce a compliant, enforceable severance agreement.

Key Components of a Severance Agreement

A complete severance agreement contains the following provisions, each tailored to the scenario and the employee's status under federal and state law.

EEOC & Protected Rights

The Equal Employment Opportunity Commission has taken the consistent position that severance agreements cannot require employees to waive the right to file a charge with the EEOC or cooperate with an EEOC investigation. Language that purports to prohibit charge-filing, cooperation, or participation in agency proceedings is unenforceable and may itself constitute unlawful retaliation under Title VII, the ADEA, the ADA, and related statutes. The EEOC's Enforcement Guidance on Non-Waivable Employee Rights (1997) and more recent guidance make clear that the only portion of an EEOC right that can be waived is the right to receive personal monetary relief — not the right to file, participate, or assist in agency proceedings.

The NLRB extended this framework in McLaren Macomb (2023), holding that merely presenting an employee with a severance agreement containing overly broad non-disparagement and confidentiality provisions violates Section 8(a)(1) of the National Labor Relations Act because it tends to interfere with Section 7 rights. The decision applies to both union and non-union workplaces and covers most private-sector employers. Post-McLaren, severance agreements should include specific language preserving the right to discuss wages, working conditions, and workplace concerns with other employees, labor organizations, and agencies, and should avoid broad gag language that could chill protected activity.

Tax Treatment of Severance

Severance payments are wages for federal tax purposes. The Supreme Court confirmed this in United States v. Quality Stores, Inc. (2014), holding that supplemental unemployment benefit payments are wages subject to FICA. Severance is subject to federal income tax withholding at the supplemental wage rate (22% flat up to $1 million; 37% above), Social Security tax up to the wage base, Medicare tax including the 0.9% Additional Medicare Tax above $200,000, FUTA, and state and local income taxes. Severance is reported on Form W-2, not Form 1099, and is treated as wages even for former employees.

Section 409A of the Internal Revenue Code imposes strict timing rules on the payment of severance. To avoid §409A characterization as nonqualified deferred compensation, severance must fit within one of three exceptions: the short-term deferral exception (payment completed by March 15 of the year following the year in which the right to payment vests), the separation-pay exception for involuntary separations (payment limited to 2x the lesser of compensation or the §401(a)(17) limit and completed by the end of the second year following separation), or the separation-pay plan exception under Treas. Reg. §1.409A-1(b)(9). A release-timing problem arises when the agreement gives the employee more than one taxable year to consider and sign — the payment could span two tax years, violating §409A. Modern agreements fix the payment date at the later of the 60th day after separation or the expiration of the revocation period, which fits within §409A's permitted release-timing rules.

Sample Severance Agreement

Below is a condensed excerpt showing the key provisions of our severance and release agreement template. The full document runs 12 to 20 pages depending on scenario and selected options.

Frequently Asked Questions

Common questions about severance agreements, OWBPA compliance, and release scope.

Official Resources

Authoritative federal agency resources for severance agreements and employment releases.