Severance Agreement Review for Employers

A VP of Sales is being let go on Friday. HR sends you the standard separation template at 4:40pm Thursday with a note: “Can you bless this? She's expecting the package tomorrow morning.” The template is two years old. The employee is 52, which means the age release clause matters. Three other people exited in the same reduction, which may make this a group termination. And the non-disparagement paragraph reads like a 2019 form. The severance agreement review you run tonight decides whether the release the company pays for tomorrow will hold.

A severance agreement review is the legal check on a separation agreement before it binds anyone. The employee's lawyer runs it to protect the person signing. In-house counsel runs it to confirm the release the company is paying for will hold, across eight points: OWBPA timing, McLaren Macomb limits, release scope, consideration, carve-outs, state addenda, Section 409A, and revocation mechanics.

The stakes are asymmetric, which is what makes the Thursday-afternoon ask dangerous. A severance agreement that is too generous costs the company money. A severance agreement that is defective costs the company the release. In Oubre v. Entergy Operations, the Supreme Court held that an employee who signed a release failing the Older Workers Benefit Protection Act could keep the severance and still sue for age discrimination, because retaining the money ratified nothing when the release itself was invalid. And if a confidentiality or non-disparagement clause overreaches under the National Labor Relations Act, the company can face an unfair labor practice charge over a document it drafted to close the matter.

GC AI is the enterprise-grade legal AI platform built for in-house counsel, used by 2,200+ legal teams including 300+ public companies. Teams encode their standard positions once, then GC AI reads each new template against them, quotes the exact language that deviates, and pulls the primary law behind every flag, so the judgment calls stay with counsel.

What You Can Tell HR Tomorrow Morning

The employee may sign before the 21-day consideration period expires, and the company still cannot pay her until the 7-day revocation window closes. 29 CFR 1625.22 permits early signing as long as her decision to accept the shortened time is knowing and voluntary and the company has not induced it through fraud, misrepresentation, a threat to withdraw or alter the offer, or better terms for signing early.

What you cannot do is speed up the back end. The same regulation is flat about it: the 7-day revocation period “cannot be shortened by the parties, by agreement or otherwise.” Signing on Friday starts that clock. It does not skip it. The earliest the company can pay is the eighth day after she signs, and money that moves before then is money paid on an agreement that has not taken effect.

One more trap sits inside the negotiation everyone expects to have. Material changes to the final offer restart the 21-day or 45-day period. Immaterial changes do not. And the parties may agree in the document itself that no change, material or otherwise, restarts the clock. That single sentence, added to the template tonight, is what stops a Tuesday counteroffer from resetting your timeline by three weeks.

The EEOC received 88,531 discrimination charges in fiscal year 2024, up more than 9% over the prior year, and the release is the document that keeps a separation from joining that queue.

Severance is also one of five documents covered in the GC AI pillar on AI employment contract review, which walks through offer letters, IP assignment, restrictive covenants, and independent contractor agreements alongside it. If you are reviewing more than the release alone, start there.

Encode Your Severance Checklist as a Playbook in a Free Trial Book a Demo

The Employer-Side Severance Agreement Review Checklist

Run these eight checks against any severance template before it leaves the building. Three of them can cost the company the release or draw a charge on their own, and those come first.

OWBPA timing and disclosures for any age release
McLaren Macomb limits on confidentiality and non-disparagement
Release scope: which claims it waives
Consideration: is the company paying for something new
Carve-outs the release cannot touch
State-specific addenda and notice rules
Section 409A and tax treatment of the payout
Signatures, dates, and the revocation mechanics

OWBPA Timing and Disclosures for Age Releases

If the departing employee is 40 or older and the agreement waives age discrimination claims, the release has to satisfy the Older Workers Benefit Protection Act, which amends the Age Discrimination in Employment Act. A waiver that misses any OWBPA requirement is not enforceable as to the ADEA claim, and the employee keeps the severance regardless.

The requirements:

The agreement advises the employee in writing to consult an attorney.
The employee gets at least 21 days to consider it.
The employee gets 7 days to revoke after signing.
In a group termination or reduction in force, the consideration period rises to 45 days, and the company must attach the decisional unit disclosures: the job titles and ages of everyone selected and not selected for the program.

Most templates never mention the term the disclosure exhibit turns on, and that omission is what sinks the group-termination path. A decisional unit is “that portion of the employer's organizational structure from which the employer chose the persons who would be offered consideration for the signing of a waiver and those who would not.” Draw it too narrowly, around the team the VP happened to sit on, and the exhibit understates who was in the pool. Draw it too broadly, around the whole company, and you disclose ages you had no business disclosing. Ask HR which population the decision-makers looked at, then paper that.

The 45-day window and the disclosure exhibit are the two things stale templates miss. When HR hands you a single-employee template for what is functionally a group exit, this is the first thing to flag.

McLaren Macomb Limits on Confidentiality and Non-Disparagement

Broad confidentiality and non-disparagement clauses in severance agreements can violate the National Labor Relations Act. In McLaren Macomb (NLRB, February 21, 2023), the Board held that offering a severance agreement with provisions that have a reasonable tendency to restrain employees from exercising Section 7 rights is itself unlawful. The clauses at issue barred the employee from disclosing the agreement's terms and from making any statement that could harm the employer's image.

On review, the Sixth Circuit enforced the Board's order (NLRB v. McLaren Macomb, September 19, 2024) but expressly declined to rule on the Board's broader Section 7 standard, finding the conduct unlawful even under prior precedent, so the scope of the rule remains contested.

Then the guidance moved. GC 23-05, the General Counsel memorandum that told employers how to read McLaren Macomb, was rescinded on February 14, 2025 in a batch of 29 memoranda withdrawn by the Acting General Counsel. General Counsel memoranda do not bind the Board, so the decision itself still governs what the Board and its administrative law judges apply. What employers lost is the interpretive gloss they had been drafting against since 2023, which is why a template last touched in 2023 deserves a fresh read before it goes out again.

Narrowly tailored language survives. A confidentiality clause limited to genuine trade secrets with a legitimate business justification, and a non-disparagement clause limited to maliciously false statements, generally hold. The express carve-out preserving the employee's right to file charges and communicate with the NLRB and other agencies is what makes the narrowing credible.

Release Scope: Which Claims It Waives

Read the release language for what it covers and what it silently leaves out. A general release of “all claims” still needs the specific federal and state statutes named to waive them cleanly, and some claims cannot be released by a general waiver at all.

The recurring failure is a release drafted for one jurisdiction that gets reused for an employee in another, leaving a state-specific claim live. Confirm the release runs to the named entity plus its affiliates, officers, and successors, and that it covers the claims the company is paying to extinguish.

Two boilerplate provisions carry more weight here than their placement suggests. The severability clause decides whether the rest of the release survives when a court voids one waiver, which is the difference between losing the age claim and losing the entire agreement. The entire agreement clause decides whether a manager's verbal promise about the payout, made in the exit conversation, can be argued back into the deal.

Consideration: Is the Company Paying for Something New

The release is only enforceable if the employee receives consideration they were not already owed. Accrued wages, earned commissions, vested equity, and benefits the employee is entitled to under existing policy do not count. The severance payment has to be something extra in exchange for the release.

When a template recites the final paycheck and accrued PTO as the “consideration,” the agreement is exchanging the release for nothing, and the waiver is exposed. The fix is one line: name the severance payment as value the employee is not otherwise entitled to receive.

Carve-Outs the Release Cannot Touch

Certain rights survive any release, and the agreement should say so to avoid an overbreadth problem.

The employee keeps the right to file a charge with the EEOC, NLRB, SEC, or a state agency, to participate in an agency investigation, and to receive a whistleblower award.
Vested retirement benefits, unemployment claims, and workers' compensation rights generally cannot be waived.

A modern severance template states these carve-outs expressly. A template missing them reads as if it is trying to waive unwaivable rights, which is exactly the overbreadth that draws scrutiny.

The same overbreadth question reaches the dispute-resolution terms. When the separation agreement carries an arbitration clause or a class action waiver, confirm neither is drafted broadly enough to sweep in the agency charges and investigations the carve-outs preserved.

State-Specific Addenda and Notice Rules

Severance agreements are governed by a patchwork of state rules layered on the federal floor.

California restricts non-disparagement and confidentiality provisions that would prevent disclosure of unlawful acts, and limits no-rehire clauses.
Minnesota gives employees a rescission period for releases of state discrimination claims.
Several states require specific language to waive their wage or discrimination statutes.

California carries a trap worth naming on its own. Under Civil Code section 1542, a general release does not reach claims the employee does not know or suspect to exist at the time of signing. Without an express waiver of that section, a California exit paper releases only the claims the employee already knew about.

Separation agreements also routinely restate or extend the restrictive covenants from the original offer letter. The state map bites hardest on those. A non-compete carried into a severance agreement is void in California, Minnesota, Montana, North Dakota, and Oklahoma. Wyoming joined them for agreements entered on or after July 1, 2025, though its statute carves out executive and management personnel, which is the population most likely to be handed a severance agreement in the first place. A dozen more states, including Colorado, Illinois, Oregon, and Washington, permit non-competes only above an income threshold. A non-solicitation clause survives in more places, though not everywhere and not at any width.

The review question is whether this template complies for this specific employee's work state, which the template author may never have considered. Make the state addendum a standing item in the review, keyed to the employee's work state.

Section 409A and Tax Treatment

Severance can implicate Section 409A of the Internal Revenue Code when the payout qualifies as deferred compensation, and a 409A violation lands on the employee as an immediate tax plus a 20% penalty. This is the check most likely to need a tax or benefits colleague, so raise it on day one of the review.

Ordinary severance generally fits within the short-term deferral or separation-pay exemptions, but the timing language has to be drafted to land inside one of them. Watch for payments tied to the employee signing a release where the signing window straddles two tax years, because the employee can then choose the year the money arrives, which is the thing Section 409A exists to prevent.

The drafting fix is mechanical. State that payment lands on a fixed date, such as the 60th day after separation, provided the release has become irrevocable by then. Or state that when the payment window straddles two tax years, payment falls in the second year regardless of when the employee signs. Either one takes the choice of tax year away from the employee.

Signatures, Dates, and Revocation Mechanics

The procedural close is where good substance still fails. Confirm that:

The agreement is only effective after the revocation period runs.
The dates and consideration period are filled in, with no bracketed placeholders left behind.
The signature block records dates proving the employee received the full consideration window.
Any payment is conditioned on the agreement becoming effective post-revocation.

Then read the notices clause alongside the revocation paragraph, because it governs how a revocation must be delivered and to whom. A revocation mailed to a general corporate address, or emailed to a manager who has since left the company, is the kind of dispute that turns a seven-day window into litigation. Confirm the governing law clause names a state consistent with the addendum you added, because templates default to the state of incorporation.

A release the employee signs and revokes, with the money already paid, is the worst of both outcomes.

Try the Eight-Point Check on Your Own Template Book a Demo

How to Speed Up a Severance Agreement Review With AI

GC AI runs the repeatable parts of a severance agreement review in minutes. Against the eight-point checklist, that means:

OWBPA timing and disclosures. Flags a template still carrying a 21-day window when the exit is functionally a group termination, and a decisional-unit exhibit that never got attached.
The McLaren Macomb line. Surfaces confidentiality and non-disparagement language that runs past narrowly tailored.
Release scope and carve-outs. Checks the release against the statutes it names and the rights it cannot waive.
Consideration. Catches a template reciting final pay and accrued PTO as the value being exchanged.

In GC AI, you encode the checklist once as a Playbook. The platform runs the eight checks against any template you drop in and returns the gaps as a structured list. The same pattern carries across agreement types, which is the subject of the GC AI guide to AI contract review.

When it flags a clause, Exact Quote pulls the language verbatim, every comma and character, so the review runs on the agreement's own words.

When the agreement raises a question the document cannot answer, such as whether the employee's work state has a rescission period for the release, Research pulls from primary law with citations you can verify yourself.

GC AI is SOC 2 Type II and SOC 3 certified, GDPR compliant, with zero data retention agreements with its model providers wherever feasible, and AES-256 encryption.

Cameron Clark, Head of Legal at Arc'teryx, described the shift in plainer terms:

What used to take an hour, like reviewing contract feedback and drafting a reply, now takes ten minutes, and the results are better.

For the first year, Clark was the only lawyer at Arc'teryx, running the workload of a full legal team.

The same compression applies to a separation agreement landing at 4:40 on a Thursday: the first pass on OWBPA timing, release scope, and the confidentiality language runs in minutes, and the judgment call on whether the package is right stays yours.

GC AI is used by 2,200+ legal teams across 50+ countries as of October 2026, including the legal departments at Liquid Death, Riot Games, TIME, SKIMS, Tipalti, and Snyk, plus 300+ public companies, and carries an NPS of 80.

Start Your Severance Agreement Review This Week

If you have a separation agreement to issue this week, run the three highest-risk checks first. Confirm whether the employee is 40 or older and whether this is functionally a group termination, which sets your OWBPA timing and disclosure obligations. Read the confidentiality and non-disparagement clauses against the McLaren Macomb line and narrow them if they overreach. Confirm the consideration is genuinely new value the employee was not already owed.

Those three catch the failures that cost the company the release. The remaining five tighten the agreement. Encode all eight as a Playbook once, and the next Thursday-afternoon template arrives as a structured pass instead of a fire drill. If you want to learn the prompting patterns behind it first, start with GC AI's free AI courses for legal professionals.

Run the Eight Checks Against Your Own Template

See how in-house teams review severance agreements against their own standard positions in GC AI.

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Frequently Asked Questions

What Should an Employer Check Before Issuing a Severance Agreement?

An employer should check eight things before issuing a severance agreement: OWBPA timing and disclosures, McLaren Macomb-safe confidentiality and non-disparagement language, a release that names specific statutes, genuinely new consideration, preserved agency carve-outs, applicable state addenda, Section 409A timing, and clean signature and revocation mechanics. In-house teams that turn these checks into a repeatable process, such as a Playbook in GC AI, catch the gaps before an agreement reaches an employee's desk.

Are Employers Required to Offer Severance Pay?

No federal law requires an employer to offer severance pay. The Department of Labor treats severance as a matter of agreement between an employer and an employee, or between an employer and a union. The Fair Labor Standards Act does not mandate it. Employers that do offer severance still have to satisfy OWBPA timing, release scope, and consideration requirements for the offer to hold up.

What Is the OWBPA 21-Day and 45-Day Rule for Severance Agreements?

The 21-day rule applies to an individual termination, and the 45-day rule applies when the employee is one of a group being let go under an exit incentive or other employment termination program. Both run alongside a 7-day revocation window that begins when the employee signs. The 45-day path also requires a decisional-unit disclosure listing the job titles and ages of those selected and not selected, and an employer who treats a small multi-person reduction as a single-employee exit will miss both requirements at once.

Does McLaren Macomb Limit Non-Disparagement and Confidentiality Clauses in Severance Agreements?

Yes, and it reaches the offer itself, so an employer can violate the National Labor Relations Act by presenting the agreement even where the employee never signs it. What the Board struck down was a pair of provisions covering the secrecy of the deal itself and any speech that might damage the employer's reputation. Language confined to genuine trade secrets with a legitimate business justification and to maliciously false statements, paired with a carve-out preserving the right to file charges with and communicate with the NLRB, is what survives.

What Makes a Severance Release Unenforceable?

A severance release fails when the age waiver misses an OWBPA timing or disclosure requirement, when the consideration is something the employee was already owed, when the confidentiality or non-disparagement language overreaches under the NLRA, or when the release reaches rights that cannot be waived at all. Drafting compounds the risk. A release that waives all claims generically, without naming the specific federal and state statutes it covers, can leave gaps an employee later argues around, and the severability clause decides whether the rest of the agreement survives when one waiver provision is struck.

Which Employee Rights Can a Severance Agreement Never Waive?

An employee keeps the rights that come from a statute rather than from the contract. That includes filing a charge with the EEOC, NLRB, SEC, or a state agency, participating in an agency investigation, and collecting a whistleblower award, and it generally extends to vested retirement benefits, unemployment claims, and workers' compensation. A release that reaches for any of these reads as overbroad even where the overreach is unenforceable, which is why the express carve-out protects the rest of the document.

Can Employers Count Accrued Wages or Vested Benefits as Severance Consideration?

No. Consideration has to be something the employee would not receive by walking away without signing. Final wages, earned commissions, vested equity, and anything already promised under an existing policy fail that test, because the employee is owed them either way. When the only value named in the agreement is money the company already owes, the employee has surrendered claims without receiving anything, and the waiver will not survive a challenge.

Is Severance Pay Subject to Section 409A?

Sometimes, and the exposure is almost entirely about timing. Severance that falls outside the short-term deferral and separation-pay exemptions counts as deferred compensation, and a violation taxes the employee immediately and adds a 20% penalty. The trouble starts when the window for signing the release straddles two tax years, because the employee can then choose the year of payment. Naming a fixed payment date, or requiring payment in the second year whenever the window straddles two, removes that choice.

When Does a Severance Agreement Take Effect After the Revocation Period?

On the eighth day after the employee signs, provided no revocation arrives first. That window is fixed by regulation and the parties cannot contract around it, so no payment should leave the company until it has run. The agreement should state that it becomes effective on that date, and the notices clause should state exactly where and how a revocation has to be delivered.

Severance Agreement Review for Employers (Before You Issue It)