What to Look for When Reviewing a Separation Agreement Before Signing

Recent Trends

More employees are being presented with separation agreements as layoffs and voluntary departure programs rise across industries. The shift to remote and hybrid work has introduced new complexities: agreements now often address return of company equipment, digital data handling, and the tax implications of severance paid across state lines. Simultaneously, the use of digital signature platforms has shortened review windows, making it easier to sign without fully understanding the terms.

Background

Separation agreements are binding contracts between an employer and a departing employee, typically exchanged in exchange for severance pay, benefits continuation, or outplacement support. They commonly include a release of legal claims—meaning the employee waives the right to sue the employer under various employment laws. While these documents can provide closure and financial cushion, they also impose restrictions that may affect future work and personal finances.

User Concerns

Individuals reviewing a separation agreement often encounter the following areas of risk:

• Release of claims – The scope of legal rights you are giving up, including age, discrimination, wage, and contract claims. Some agreements may waive future claims or those not yet known.
• Non-compete and non-solicitation clauses – Restrictions on working for competitors, starting a similar business, or contacting former clients and colleagues for a set period. These vary widely in duration and geographic reach.
• Confidentiality obligations – Prohibitions on discussing the terms of the agreement or the circumstances of your departure. Some clauses also ban disclosing company trade secrets or proprietary information.
• Severance and benefit terms – The exact payment amount, schedule (lump sum vs. installments), and whether it is contingent on any future behavior (e.g., not revoking the agreement). Also, continuation of health insurance, stock options, or unvested equity.
• Revocation and consideration periods – Your legal right to change your mind after signing. For employees over 40, U.S. law generally requires at least 21 days to consider and 7 days to revoke after signing, but state laws differ.
• Return of property and cooperation clauses – Obligations to return all company devices, documents, and passwords on a specific timeline. Cooperation clauses may require ongoing assistance with litigation or audits without extra compensation.

Likely Impact

Signing without a thorough review can result in forfeiting important legal rights, accepting inadequate severance, or inadvertently violating restrictive covenants that prevent a new job. Employees who waive claims under equal employment opportunity laws may lose the ability to challenge discriminatory practices. Conversely, a well-negotiated agreement can provide a cleaner departure, financial runway, and a mutual boundary between both parties. The impact often extends beyond immediate finances: it can affect unemployment insurance eligibility, tax liabilities, and professional reputation.

What to Watch Next

Legislative and judicial developments continue to reshape separation agreement practice. Several U.S. states are tightening rules on non-compete clauses and limiting their enforceability for lower-wage workers. The Federal Trade Commission has proposed a nationwide ban on most non‑competes, which could alter how separation agreements are drafted. Watch for updates in your state regarding mandatory review periods or new disclosure obligations—especially around health insurance continuation and COBRA notices. In negotiation, consider seeking an attorney’s review before signing, and always request a redlined version of changes if modifications are proposed.