Download a free severance agreement template in PDF and Word format below. Whether you’re an employer offering separation benefits or an employee being offered severance, this customizable agreement covers severance pay, release of claims, benefits continuation, and non-disparagement. Updated for 2026 with current employment law standards.
What is a Severance Agreement?
A severance agreement (also called separation agreement or termination agreement) is a legal contract between an employer and a departing employee that outlines the terms of the employee’s exit. It typically includes severance pay, benefits continuation, and a release of legal claims against the employer.
There is no shortage of free severance agreement templates online. The problem is that most of them are either incomplete (missing the disclosures or signature blocks that matter) or so heavily watermarked and bait-and-switch that they’re functionally useless. This one isn’t. Download in PDF or Word, customize the bracketed fields, and you are done.
When Do You Need a Severance Agreement?
- Layoffs and workforce reductions
- Executive terminations — often with significant packages
- Performance-related terminations
- Mutual separations — when employee and employer agree to part ways
- Position eliminations due to restructuring
- Retirement packages with extended benefits
- Acquisition-related departures
- Avoiding wrongful termination claims
Key Components of a Severance Agreement
- Parties — employer and employee
- Last day of employment
- Severance pay — amount, payment schedule, lump sum or installments
- Benefits continuation — health insurance (COBRA), other benefits
- Unused PTO payout — vacation, sick days
- Bonus and commission — earned vs. unearned amounts
- Equity and stock options — vesting, exercise periods
- Return of property — laptop, badges, documents
- Release of claims — employee waives right to sue
- Confidentiality — agreement terms remain private
- Non-disparagement — neither party speaks negatively about the other
- Reference and rehire — what employer will say
- Non-compete and non-solicitation — if applicable
- Cooperation clause — employee assists with transitions
- Older Worker Benefit Protection Act (OWBPA) — if employee is 40+
- Time to consider — typically 21-45 days for OWBPA
- Revocation period — 7 days for OWBPA
- Governing law
- Signatures
How to Structure a Severance Agreement
- Identify the parties — employer entity and employee.
- State the last day of employment — clear and definite.
- Specify severance pay — amount, schedule, withholding.
- Detail benefits continuation — COBRA, retirement, other benefits.
- Address PTO payout — accrued vacation, sick time.
- Handle bonuses and commissions — earned but unpaid amounts.
- Specify equity treatment — vesting acceleration, exercise periods.
- List property to return — company equipment and information.
- Include release of claims — comprehensive release language.
- Add non-disparagement clause — protects employer reputation.
- Define reference policy — what employer will tell future employers.
- Include restrictive covenants — non-compete, non-solicit if applicable.
- For employees 40+: add OWBPA compliance — 21-45 days consideration, 7-day revocation.
- Sign and provide copy — both parties keep signed copies.
Typical Severance Pay Amounts
Severance pay varies widely. Common structures:
- Standard: 1-2 weeks per year of service
- Generous: 1 month per year of service
- Executive: 6-24 months base salary plus bonuses and benefits
- Minimum: 2-4 weeks regardless of tenure (often for layoffs)
- Federal WARN Act: 60 days’ notice or pay for mass layoffs at large employers
- Cap at top: Often capped at 6-12 months even for long-tenured employees
Older Worker Benefit Protection Act (OWBPA)
For employees aged 40 and older, the OWBPA requires specific provisions for release of age discrimination claims:
- Written and easily understood
- Specifically reference ADEA (Age Discrimination in Employment Act)
- Advise employee to consult attorney
- 21 days to consider (45 days for group terminations)
- 7-day revocation period after signing
- Consideration beyond what employee would already receive
- Disclosure of group terminations — list of selected and not selected employees with ages
Failure to comply makes the age discrimination release unenforceable.
Common Severance Agreement Mistakes
- Insufficient consideration — employee gets nothing extra for releasing claims
- OWBPA non-compliance — invalidates age discrimination releases
- Overbroad release — courts may strike unenforceable provisions
- Missing protected claims — can’t release some claims (whistleblower, NLRB, etc.)
- No time to consider — pressuring quick signature
- Vague reference policy — disputes about what employer says later
- Inconsistent treatment — different terms for similar employees can trigger discrimination claims
- Forgetting state-specific requirements — some states have stricter rules
Download Your Free Severance Agreement Template
Frequently Asked Questions
Are employers required to provide severance?
Generally no, unless required by an employment contract, policy, or collective bargaining agreement. The federal WARN Act requires 60 days’ notice (or pay) for mass layoffs at large employers.
Can an employee negotiate severance?
Yes, especially for senior positions or where the employer has potential legal exposure. Common negotiation points: amount, benefits duration, vesting acceleration, reference language, non-compete release.
Should I sign a severance agreement immediately?
No. For employees 40+, OWBPA gives 21-45 days to consider. Even for younger employees, take time to review with an attorney. Never sign under pressure.
What claims am I waiving by signing?
Typically all employment-related claims: discrimination, harassment, wrongful termination, wage claims, contract claims. Cannot waive: workers’ compensation, unemployment benefits, future claims, whistleblower retaliation, NLRB rights, certain ADA claims.
Is severance pay taxable?
Yes. Severance pay is taxable as ordinary income. Employer typically withholds federal and state taxes, FICA (Social Security and Medicare). Lump sum payments may push you into higher tax bracket.
Can I collect unemployment if I receive severance?
Depends on the state. Some states delay unemployment benefits during severance payment period. Others allow concurrent benefits. Check your state unemployment office.
Can an employer offer different severance to different employees?
Yes, based on factors like tenure, position, performance, or salary. Cannot discriminate based on protected class (age, race, gender, etc.). Inconsistent treatment of similar employees triggers discrimination concerns.
Do I need a lawyer to review a severance agreement?
Strongly recommended, especially for executive positions, complex cases, or potential discrimination claims. Many employment attorneys offer flat-fee severance reviews ($300-1,000).
Can severance be revoked?
For employees 40+, OWBPA gives 7-day revocation period. Otherwise, signed agreements are binding. Either party can sue to enforce or invalidate.
What if I sign and later discover discrimination occurred?
Severance releases typically cover past claims — including those you didn’t know about. Federal whistleblower and certain other claims can’t be waived, but most discrimination claims can.
Related Templates
- Free Employment Contract Template
- Free Non-Compete Agreement Template
- Free NDA Template
- Free Termination Letter Template
- Free Offer Letter Template
Disclaimer: This template is for informational purposes only and does not constitute legal advice. Severance agreements have significant legal implications. Strongly recommended to have an employment attorney review before signing or providing severance agreements, especially for employees aged 40+.