Severance Agreements in New York

If your employer has presented you with a severance agreement, the single most important thing you can do is pause before signing. A severance agreement is a legally binding contract. Once you sign it, you give up the right to bring legal claims against your employer, including claims for discrimination, harassment, retaliation, wrongful termination, and unpaid compensation. In exchange, the employer provides severance pay and, in some cases, additional benefits. The terms of that exchange are almost always negotiable, and the initial offer is rarely the best the employer is willing to provide.

This guide explains what New York employees should know about severance agreements, what to look for in the terms, and why having an attorney review the agreement before you sign is essential.

What Is a Severance Agreement?

A severance agreement is a contract between an employer and a departing employee that defines the terms of the separation. The employer provides compensation (severance pay, continued benefits, or both) in exchange for the employee's agreement to release all legal claims against the employer. The agreement may also include restrictive covenants (non-compete, non-solicitation, and confidentiality provisions), cooperation obligations, non-disparagement clauses, and other terms that govern the parties' rights and obligations after the employment ends.

Severance agreements are most commonly offered in connection with involuntary terminations (layoffs, position eliminations, and terminations without cause), but they can also arise in the context of voluntary departures, retirements, and negotiated separations. The agreement typically takes the form of a written document that the employee is asked to review, sign, and return within a specified period.

Why Employers Offer Severance

Employers offer severance agreements for one primary reason: to obtain a release of legal claims. The release protects the employer from the risk that the terminated employee will file a lawsuit for wrongful termination, discrimination, harassment, retaliation, breach of contract, or any other employment-related claim. The severance payment is the consideration (the legal term for something of value) that makes the release enforceable. Without consideration beyond what the employee is already owed (such as final wages and accrued vacation), the release may not be valid.

Understanding this dynamic is important because it means the employer has something to gain from the agreement, not just the employee. The employer wants the certainty and finality that a signed release provides. This gives the employee leverage to negotiate better terms, particularly when the circumstances of the termination suggest that the employee may have viable legal claims.

Key Terms in a Severance Agreement

Severance Pay

The severance pay provision defines the amount the employer will pay, the payment schedule (lump sum or installments), and any conditions on payment (such as the employee's compliance with the agreement's other terms). There is no legal standard for severance amounts in New York. Common benchmarks range from one week to two weeks of base salary per year of service, but the actual amount depends on the employee's position, tenure, compensation level, and the circumstances of the termination. Executives and senior professionals typically receive more generous packages, and employees with potential legal claims have leverage to negotiate above the standard range.

If severance is paid in installments, the agreement should specify what happens if the employer fails to make a payment and whether the employee's obligations (such as non-compete restrictions) continue if the employer defaults. Some agreements also include a "clawback" provision that requires the employee to return severance pay if they violate the agreement's terms. Your attorney should review any clawback provision to ensure it is reasonable and clearly defined.

Release of Claims

The release is the provision that eliminates the employee's right to sue the employer. A typical release covers all claims arising from the employment relationship and the termination, including claims under federal, state, and local anti-discrimination laws (Title VII, the ADA, the ADEA, the New York State Human Rights Law, and the New York City Human Rights Law), wage-and-hour claims under the Fair Labor Standards Act and the New York Labor Law, breach of contract claims, tort claims (such as defamation or intentional infliction of emotional distress), and any other claims the employee may have.

Before signing a release, your attorney should evaluate whether you have any viable claims that are worth more than the severance being offered. If the circumstances of your termination involved discrimination, harassment, retaliation, or other unlawful conduct, the value of those claims may significantly exceed the severance package. In that case, the appropriate strategy may be to negotiate a substantially larger severance payment that reflects the value of the claims you are releasing, or to decline the agreement and pursue the claims directly.

Age Discrimination Protections (OWBPA)

If the employee is 40 years of age or older, the release of age discrimination claims under the Age Discrimination in Employment Act (ADEA) must comply with the Older Workers Benefit Protection Act (OWBPA). The OWBPA requires that the release be written in plain language, that the employee be advised in writing to consult an attorney, that the employee be given at least 21 days to consider the agreement (45 days if the severance is offered as part of a group layoff), that the employee have 7 days after signing to revoke the agreement, and that the employee receive consideration beyond what they are already entitled to. An agreement that does not comply with these requirements may not effectively release the employee's age discrimination claims, even if the employee signs it.

New York-Specific Requirements for Discrimination Releases

New York has additional requirements for severance agreements that release discrimination claims. Under New York General Obligations Law Section 5-336, any agreement that prevents the disclosure of factual information related to a discrimination claim must include specific language informing the employee that the confidentiality provision is the employee's preference, that the employee has 21 days to consider the agreement and 7 days to revoke it, and that the agreement does not prohibit the employee from speaking with law enforcement, the EEOC, the New York State Division of Human Rights, or an attorney. These requirements apply regardless of the employee's age and regardless of whether the agreement involves a pre-litigation settlement or a severance package offered at termination. Non-compliance can render the confidentiality provision unenforceable. For related information on employment contract terms, see our employment contracts practice page.

Non-Compete and Non-Solicitation Restrictions

Many severance agreements include restrictive covenants that limit the employee's ability to compete with the employer, solicit the employer's clients or employees, or use the employer's confidential information after the employment ends. In New York, non-compete provisions in severance agreements are subject to a reasonableness analysis: the restriction must be reasonable in scope, duration, and geographic area, and must be necessary to protect a legitimate business interest (such as trade secrets, confidential client relationships, or unique and extraordinary services).

Non-compete restrictions are among the most negotiable terms in a severance agreement. If the employer is asking you to accept a post-employment restriction on your ability to earn a living, the severance should reflect that limitation. Your attorney can negotiate to narrow the scope of the restriction (limiting the types of activities restricted, the geographic area, or the duration), to add a carve-out for specific employers or industries, or to increase the severance payment to compensate you for the period during which you cannot compete. For a detailed discussion of non-compete enforceability, see our article on non-compete agreements in New York.

Confidentiality and Non-Disparagement

Confidentiality provisions restrict the employee from disclosing the terms of the severance agreement (including the severance amount) to third parties. Non-disparagement provisions prohibit the employee from making negative statements about the employer. Both provisions are standard in severance agreements, but they should be mutual: the employer should also be prohibited from disparaging the employee. If the agreement includes a non-disparagement clause that applies only to the employee, your attorney should negotiate for reciprocal protection.

Under New York law, confidentiality and non-disparagement provisions in agreements that resolve discrimination claims cannot be enforced through liquidated damages or forfeiture of severance pay. This means the employer cannot require you to return your severance payment if you violate the confidentiality or non-disparagement clause in connection with a discrimination-related claim. Additionally, these provisions cannot prohibit you from reporting to law enforcement, the EEOC, the NYSDHR, or other government agencies.

Reference and Employment Verification

The severance agreement should address what the employer will say about you to prospective employers. A neutral reference provision (where the employer confirms your dates of employment and final title but does not provide a substantive evaluation) is standard. Some agreements go further and include a positive reference commitment from a specific manager or executive. If your termination was contentious, the reference provision is particularly important because a negative reference from a former employer can damage your ability to find new employment.

Equity, Bonuses, and Unvested Compensation

If you have unvested stock options, restricted stock units (RSUs), deferred compensation, or a pending bonus, the severance agreement should address the treatment of each. Employers sometimes include provisions that forfeit unvested equity upon termination, which may not be required by the underlying equity plan. Your attorney should review the equity plan documents and the severance agreement to determine what you are entitled to and whether the forfeiture provisions are enforceable. If you are walking away from significant unvested compensation, the severance payment should reflect that loss.

The Severance Negotiation Process

The negotiation process typically begins when the employer presents the severance agreement to the employee. The employee takes the agreement to an attorney for review. The attorney evaluates the terms, assesses whether the employee has viable legal claims, and prepares a counterproposal. The counterproposal is communicated to the employer (usually to the employer's counsel or HR department), and the parties negotiate until they reach agreement or reach an impasse.

Most severance negotiations are resolved without litigation. The employer offered severance because it wants a clean separation, and the employee wants fair compensation for the loss of their job. Both sides have an incentive to reach agreement. The attorney's role is to ensure that the employee understands the full value of what they are giving up (including any legal claims) and to negotiate terms that reflect that value.

When to Walk Away from a Severance Offer

Not every severance agreement should be signed. If the circumstances of your termination involve serious legal violations (discrimination, retaliation for whistleblowing, harassment, or wage theft), the value of your legal claims may substantially exceed the severance being offered. In that case, your attorney may advise you to decline the severance and pursue your claims through the EEOC, the New York State Division of Human Rights, or a lawsuit. This is a strategic decision that depends on the strength of your claims, the potential damages, the cost and duration of litigation, and your personal financial circumstances. Your attorney can help you weigh these factors and make an informed decision. For more on your options, visit our employment law practice page.

Common Mistakes Employees Make with Severance Agreements

Signing without reading the agreement carefully is the most common mistake. The agreement may contain provisions you did not discuss with your employer, such as a broad non-compete, a forfeiture of unvested equity, or a cooperation obligation that requires you to make yourself available for the employer's legal matters indefinitely. Signing under time pressure, without consulting an attorney, is the second most common mistake. Even if the employer sets a short deadline for signing, the employee is entitled to reasonable time to review the agreement (and, for employees 40 and older, the OWBPA mandates a 21-day review period that the employer cannot waive).

Other common mistakes include failing to negotiate (many employees assume the initial offer is final when it is not), overlooking the treatment of accrued but unused vacation or PTO (which may be owed to you regardless of the severance agreement under New York law), and failing to negotiate the reference provision (which can affect your ability to find new employment). Your attorney can help you avoid all of these mistakes and ensure that the final agreement protects your interests. For related guidance on employment contracts, see our employment contracts guide.

Frequently Asked Questions