Lamberton Law Blog

Five Red Flags in Severance Agreements: What Every Employee Should Know

When presented with a severance agreement after job termination, many employees focus solely on the financial compensation. However, severance agreements contain critical provisions that significantly impact your future employment opportunities and legal rights. At Lamberton Law Firm, our employment attorneys regularly review severance agreements and have identified these five major red flags every employee should carefully consider before signing.

1. Overly Broad Non-Disclosure Provisions in Severance Agreements

Non-disclosure provisions have become standard components in most severance agreements, but their scope and duration require careful examination. Companies often draft severance agreement NDAs so broadly they effectively prevent you from discussing virtually anything about your former employment.

What to Watch For in Severance Agreement NDAs: Indefinite time periods without reasonable expiration dates could restrict you permanently. Vague confidentiality definitions with overly broad language defining "confidential information" create unnecessary risk. Some severance agreement NDAs attempt to prevent discussions about workplace harassment or discrimination, potentially violating whistleblower protections.

What to Request in Your Severance Agreement: Negotiate for clearly defined confidential information limited to legitimate business secrets. Reasonable time limitations appropriate for your industry should be included in any severance agreement NDA. Explicit carve-outs in your severance agreement should permit reporting unlawful conduct to government agencies, responding to legal proceedings, and discussing general job responsibilities during interviews.

Remember that severance agreement NDAs should protect legitimate business interests—not silence employees about workplace misconduct or prevent you from using your general skills and knowledge.

2. Restrictive Non-Compete Clauses in Severance Agreements

Non-compete provisions in severance agreements can severely restrict your ability to earn a living in your field after separation. While these severance agreement clauses are unenforceable in some states like California, they remain legally binding in many jurisdictions.

What to Watch For in Severance Agreement Non-Competes: Examine geographic restrictions in severance agreements that extend beyond the employer's actual market area. Non-competes in severance agreements lasting longer than 6-12 months often exceed reasonable limitations. Provisions in severance agreements that prevent employment in an entire industry rather than with specific competitors can be particularly damaging to your career prospects.

What to Request in Your Severance Agreement: Seek narrowly tailored geographic limitations in your severance agreement that reflect your employer's actual operational footprint. Reduced time periods of 3-6 months are often reasonable for severance agreement non-competes in many industries. Ask for specific language in your severance agreement limiting restrictions to actual competitors, not entire sectors. "Garden leave" provisions where the employer continues payments during the severance agreement non-compete period can help offset financial impact.

If your severance agreement includes particularly onerous non-compete terms, consider negotiating additional compensation in exchange for these career restrictions.

3. One-Sided Non-Disparagement Clauses in Severance Agreements

Non-disparagement provisions in severance agreements prevent you from making negative statements about your former employer. However, these severance agreement clauses are frequently one-sided, binding only the departing employee while allowing the company complete freedom regarding statements about you.

What to Watch For in Severance Agreement Non-Disparagement Clauses: One-sided obligations in severance agreements that restrict only your speech while placing no similar obligations on the company create unfair restrictions. Broad definitions of "disparagement" in severance agreements might classify even truthful statements about your experience as violations. Provisions in severance agreements that prohibit factually accurate negative statements can be problematic.

What to Request in Your Severance Agreement: Push for mutual non-disparagement language in your severance agreement that requires the company and its leadership to refrain from making negative statements about you. Seek clear definition in your severance agreement of which company representatives are bound by non-disparagement, ideally all managers and executives. Exceptions for truthful statements should be included in any severance agreement. Consider negotiating agreed-upon language for reference checks and explanations of your departure in the severance agreement.

Non-disparagement provisions in severance agreements should never prevent you from providing truthful information to government agencies or in response to legal proceedings.

4. Comprehensive Releases of Claims in Severance Agreements Without Adequate Compensation

The core purpose of any severance agreement is to secure a release of legal claims against the employer. However, releases in severance agreements are often extraordinarily broad, covering claims you might not even be aware you have.

What to Watch For in Severance Agreement Releases: All-encompassing releases in severance agreements with language releasing the company from "any and all claims whatsoever" deserve extra scrutiny. Provisions in severance agreements waiving rights to claims you don't yet know about could have unforeseen consequences. Inadequate severance compensation that doesn't reflect the value of the rights you're surrendering should prompt negotiation.

What to Request in Your Severance Agreement: Seek exclusions in your severance agreement for claims that cannot legally be waived, such as the right to file charges with government agencies. If you have potential legal claims with significant value, increased severance compensation may be appropriate. Consider specific carve-outs in your severance agreement for workers' compensation claims, unemployment benefits, vested benefits under retirement plans, and claims arising after signing the severance agreement.

If you believe you may have a substantial legal claim against your employer for discrimination, harassment, whistleblower retaliation, or other issues, consult with an employment attorney before signing away your rights in a severance agreement.

5. Unreasonable Return of Company Property Requirements in Severance Agreements

Many severance agreements contain strict provisions regarding the return of company property that can create unexpected liability or place unreasonable burdens on departing employees.

What to Watch For in Severance Agreement Property Return Provisions: Provisions in severance agreements requiring you to certify that you've returned "all" company property without defining what constitutes company property can create problems. Some severance agreements include language stating you've returned all "copies" of documents or information without acknowledging the practical impossibility of removing every digital trace from personal devices. Severe penalties in severance agreements for inadvertently retaining minor items like company pens or notebooks might seem disproportionate. Clauses in severance agreements demanding immediate return of property without reasonable time to gather your belongings can add unnecessary stress to an already difficult situation.

What to Request in Your Severance Agreement: Ask for a clearly defined list in your severance agreement of specific items that must be returned rather than vague, all-encompassing language. Negotiate for reasonable timelines in your severance agreement to locate and return company property. Request a process in your severance agreement for addressing inadvertently retained items discovered later without triggering breach of contract claims. Consider language in your severance agreement that acknowledges the reality of digital information and provides a protocol for permanently deleting company data from personal devices without unreasonable technical requirements.

This provision in severance agreements is particularly important in today's remote work environment, where the lines between personal and company property have blurred. Employees often use personal devices for work or have accumulated company files across various personal accounts and storage systems. A thoughtful approach to property return in severance agreements protects both parties' interests without creating undue burdens or legal exposure.

Navigating Severance Agreement Negotiations: Knowledge Is Power

The period following job loss can be emotionally and financially stressful, making it tempting to sign whatever severance agreement is presented to you. However, severance agreements often contain provisions that can impact your career and legal rights for years to come.

Before signing any severance agreement, take time to read the entire document carefully. Identify provisions in the severance agreement that seem unfair or overly restrictive. Consult with an employment attorney experienced in severance agreement review to understand the implications. Negotiate modifications to problematic terms in your severance agreement. Request additional severance compensation if you're being asked to accept significant restrictions.

Remember that severance agreements are negotiable documents. Employers expect some back-and-forth on severance terms, and many are willing to modify unreasonable severance provisions rather than lose the release of claims they seek.

At Lamberton Law Firm, we help to review and negotiate severance agreements to ensure our clients receive fair treatment and preserve their future opportunities. If you've been offered a severance agreement, we encourage you to seek professional legal advice before signing away important rights. While no one can guarantee a perfect outcome, entering negotiations with knowledge about these common severance agreement red flags will put you in a much stronger position to secure terms that protect your interests during this challenging career transition.