Quick answer: Sign a severance agreement only after you know three things: what claims you are releasing, whether the money is truly extra (not pay you are already owed), and what the agreement stops you from doing next, such as joining a competitor or talking about your job. You usually have time. If you are 40 or older, federal law gives you at least 21 days to consider a release of age claims (45 days in a group layoff) and 7 days to revoke after signing (29 CFR 1625.22). For most people with no legal claim, a fair package is worth signing. If you suspect discrimination or retaliation, or the restrictions could block your next job, get a lawyer to review it first.
This guide is for U.S. employees who were just handed a separation agreement and want to make a calm, informed decision. Most guides on this topic are written by law firms and stop at the legal release. This one also covers what signing does to your unemployment claim, your health coverage, your visa clock and your job search. If you got a WARN notice first, read what the WARN notice period means. If you are deciding whether to volunteer for a package, start with should I take a voluntary buyout.
This is general information, not legal advice. Your agreement, your state's rules and an employment lawyer are the final word on your situation.
Why this question is everywhere in November 2026
Layoffs have slowed from last year, but they have not stopped. Challenger, Gray & Christmas counted 43,994 announced U.S. job cuts in October 2026 and 617,189 through October, with technology still leading all industries at 171,501 cuts year to date (Challenger October 2026 report). Challenger called it a "low-fire environment."
Finding the next job is still slow. The BLS October 2026 Employment Situation showed payrolls up 165,000 and unemployment at 4.1%, but 2.0 million people had been unemployed for 27 weeks or more, 27.6% of all unemployed people. So a severance check often has to cover months of searching. That makes the fine print worth reading.
What you actually trade when you sign
A severance agreement is a contract. The employer pays you something you would not otherwise get, and you give up the right to sue over your employment and how it ended. The EEOC says a valid waiver must be knowing and voluntary, must give you something of value you were not already entitled to, and cannot waive future claims (EEOC Q&A on severance waivers).
| You usually give up | You usually get | You usually keep either way |
|---|---|---|
| Right to sue over known and unknown claims up to the signing date | Severance pay (lump sum or installments) | Final wages you earned |
| Some freedom to talk about the company (non-disparagement, confidentiality) | Sometimes paid COBRA premiums, a prorated bonus or equity acceleration | Vested 401(k) and other vested benefits |
| Sometimes the right to work for competitors or contact clients | Sometimes an agreed reference or neutral reference | Right to file a charge with the EEOC or take part in an agency investigation |
| Often a promise to cooperate later and return all company property | Sometimes outplacement or career coaching | Right to apply for unemployment benefits |
The key test: is the money extra? If the "severance" is only your final paycheck, accrued vacation your state requires the company to pay out, or equity that has already vested, you are signing away claims for nothing new. That is a red flag, and under the EEOC rules above, it may not even be a valid trade.
Should I sign a severance agreement? A 10-point checklist
Work through this list with the agreement open. Mark anything you do not understand and ask HR in writing.
1. The deadline and revocation period
Find the date you must sign by. If you are 40 or older and the agreement releases age claims, the Older Workers Benefit Protection Act rules apply: at least 21 days to consider (45 days for a group layoff or exit program), 7 days to revoke after signing, advice in writing to consult a lawyer, and plain-language terms (29 CFR 1625.22). Under 40, you get whatever time the agreement states, but asking for a few more days is normal.
2. The group-layoff disclosure (if you are 40+)
In a group layoff, the same regulation requires the employer to tell you which group of employees was considered, the eligibility factors, and the job titles and ages of the people selected and not selected. Read that list. If the people let go skew much older, that is worth a lawyer's look before you sign.
3. The amount and how it is paid
Check whether payment is a lump sum or salary continuation, when it starts, and what can stop it. Some agreements end installments if you start a new job or claim you broke a clause. Salary continuation can also change your unemployment timing (see the state table below).
4. Bonus and commissions
If you have earned a bonus or commission under a written plan, confirm whether it is paid on top of severance, prorated or forfeited. Earned commissions are often owed regardless, depending on your plan and state law.
5. Equity
Look up your unvested shares, any acceleration, and the exercise window for vested stock options. Missing an option exercise deadline can cost more than the severance itself.
6. Health coverage
Check whether the company pays any COBRA premiums and for how long. You have at least 60 days to elect COBRA after you get the election notice or lose coverage, whichever is later (DOL worker's guide to COBRA). Losing job-based coverage also opens a 60-day Special Enrollment Period on the Marketplace (HealthCare.gov), so compare both before you pay a COBRA premium.
7. Non-compete, non-solicit and no-hire clauses
These are the clauses that most affect your next job. Note the scope (which companies or roles), the length and the geography. Watch for language that "reaffirms" an older agreement you signed at hiring. There is no nationwide ban: the FTC rule never took effect, and in September 2025 the FTC dropped its appeal (NPR). Enforceability depends on your state.
8. Confidentiality and non-disparagement
If you are a non-supervisory employee covered by the National Labor Relations Act, the NLRB's 2023 McLaren Macomb decision says overly broad confidentiality and non-disparagement clauses in severance agreements can be unlawful. The Board applied it again in April 2026 in Prime Communications, while two members said they are open to reconsidering it (Worklaw Network summary). In August 2026 the NLRB General Counsel said she is asking the Board to overrule it (Foley and Lardner on GC 26-04). In plain terms, the rule still applies for now, but it may change. Either way, ask for mutual non-disparagement so the company also agrees not to criticize you.
9. How your exit is described
Get the reason in writing: layoff, position eliminated, or resignation. Ask for an agreed reference statement or confirmation that the company only confirms dates and title. This matters for unemployment, background checks and how you explain a layoff in an interview.
10. The end date
Your official separation date drives your unemployment claim, COBRA, equity vesting and, if you are on a visa, your grace period. Make sure it is written down and correct.
Plan your search before the signature. Use the free job search strategy tool to map target roles and a weekly pace, and run your resume through the free ATS score checker before you start applying.
How severance affects unemployment benefits (it depends on the state)
Signing a severance agreement does not waive your right to unemployment, but the payment can delay benefits in some states. Here is how three large states handle it, from their own agencies:
| State | How severance affects unemployment | Source |
|---|---|---|
| California | Severance pay is not treated as wages for unemployment purposes and does not affect eligibility. Pay in lieu of notice can be treated differently. | EDD benefit determination guide |
| New York | Severance paid within 30 days of your last day blocks benefits for weeks when the weekly amount (a lump sum is spread across weeks) is more than the maximum benefit rate, which is $869 a week as of October 2025. Severance first paid more than 30 days after your last day does not. | NY DOL P825, NY DOL max rate |
| Texas | You must report severance and wages paid in lieu of notice. You cannot get benefits while receiving certain types of severance, and TWC mails a decision. | Texas Workforce Commission |
Two practical takeaways:
- File anyway, and report the severance honestly. Agencies decide eligibility. Not reporting it can create an overpayment you have to repay.
- Payment timing is negotiable. In a state like New York, when and how severance is paid can change how many weeks of benefits you can collect. Ask whether a lump sum or a later start date is possible, and confirm the effect with your state agency.
Once you are collecting, you still have to meet your state's job search rules. See unemployment work search requirements.
Taxes: severance is wages
The IRS treats severance as wages, subject to income tax withholding plus Social Security and Medicare taxes. When it is paid separately from regular pay, employers can withhold federal income tax at a flat 22% (37% on supplemental wages over $1 million in a year) (IRS Publication 15). That flat rate is just withholding. Your real tax depends on your total income for the year, so a large lump sum in December can push more income into this tax year. Asking for the payment in January is a legitimate request worth raising with a tax professional.