Severance Contract Review

A severance contract review is a five-part attorney examination of an employment severance or separation agreement. It covers release-and-waiver review, compensation and benefits verification, confidentiality and non-disparagement review, restrictive covenant review, and compliance-floor verification, performed for one flat legal fee rather than hourly billing. The Older Workers Benefit Protection Act (OWBPA) requires specific consideration and revocation periods for a release of age discrimination claims to be knowing and voluntary, and a release that fails to meet these requirements does not waive the employee's ADEA claims regardless of what the employee signed. Three key aspects are used to evaluate the agreement in a complete review: release-and-waiver review, compensation and benefits review, and confidentiality and non-disparagement review against current federal labor board precedent. Contract review is a distinct activity from contract negotiation. 

The most commonly skipped step in a severance review is confirming whether the agreement's confidentiality and non-disparagement clauses comply with the National Labor Relations Board's 2023 McLaren Macomb decision for a non-supervisory employee, since a proffer alone, not just enforcement, can violate federal labor law. Employees offered an individual severance package, employees included in a group layoff or reduction in force, and executives negotiating a departure package all use this review before signing.

What Is a Severance Contract Review?

A severance contract review is the attorney-led examination of a severance or separation agreement to confirm its enforceability, quantify its compensation and release exposure, and verify its terms meet applicable federal waiver and labor law requirements. General contract law requires offer, acceptance, and consideration for an agreement to be enforceable, and a review confirms these elements are present alongside compliance with the OWBPA's waiver standard and current NLRB precedent on confidentiality language.

Three things a severance contract review is not.

1. Not the same as reading the severance letter alone. The letter states the offer. A review evaluates what the underlying agreement means legally, including whether the release meets the consideration period the OWBPA requires and whether the confidentiality clause survives current labor board scrutiny.
2. Not the same as contract negotiation. Review identifies and explains risk. Negotiation is the separate, later step of requesting specific changes from the employer.
3. Not the same as an unemployment benefits eligibility determination. A state unemployment agency makes that determination separately, though the severance agreement's characterization of the separation can affect the outcome.

What Is the OWBPA's Knowing-and-Voluntary Waiver Requirement, and Why Is It the Threshold Question?

The OWBPA's knowing-and-voluntary waiver requirement is the federal standard, codified at 29 U.S.C. § 626(f), that governs whether a release of age discrimination claims under the Age Discrimination in Employment Act is legally valid. An employee must receive at least 21 days to consider an individual severance offer, or 45 days when the offer is part of a group termination or exit incentive program, and the employee retains 7 days after signing to revoke the agreement.

A release that skips these periods does not validly waive the employee's ADEA claims, regardless of the employee's signature on the document. This consequence makes the OWBPA the threshold question for any severance review, since an agreement can appear complete and enforceable in every other respect while remaining ineffective as to age discrimination claims specifically. For a group termination or exit incentive program, the OWBPA imposes an additional disclosure requirement: the employer must provide the job titles and ages of all employees selected for the program and all employees in the same job classification who were not selected, giving the affected employee the information needed to assess whether age played a role in the selection.

Three OWBPA rules for contract review.

1. Confirm the stated consideration period matches the termination type. An individual termination requires 21 days at minimum, and a group termination or exit incentive program requires 45 days, and an agreement offering less than the applicable period signals a defective release as to ADEA claims.
2. Confirm the 7-day revocation period is stated explicitly and that the agreement does not become effective until that period expires. An agreement attempting to take effect immediately upon signing, without honoring the revocation window, fails the OWBPA standard.
3. Confirm the group-termination disclosure, where applicable, actually lists job titles and ages as required, since a vague or incomplete disclosure undermines the knowing-and-voluntary standard the OWBPA demands.

What a Severance Contract Review Includes

A severance contract review includes six components: release-and-waiver review, compensation and benefits verification, confidentiality and non-disparagement review, restrictive covenant review, tax-treatment review, and compliance-floor verification. Each component targets a distinct financial or legal exposure in the agreement.

1. Release-and-waiver review. The attorney confirms the release meets OWBPA consideration and revocation requirements and identifies exactly which claims the release covers.
2. Compensation and benefits verification. The attorney confirms the severance formula, payment timing, and COBRA continuation terms match what the employer represented.
3. Confidentiality and non-disparagement review. The attorney checks whether these clauses are narrowly tailored enough to withstand a challenge under current NLRB precedent.
4. Restrictive covenant review. The attorney reviews any non-compete or non-solicitation language carried over from the original employment agreement or newly added in the severance agreement.
5. Tax-treatment review. The attorney confirms whether severance is characterized as standard W-2 wages or structured as deferred compensation subject to IRC § 409A timing rules.
6. Compliance-floor verification. The attorney confirms the agreement meets OWBPA, WARN Act, and other applicable statutory minimums.

Confidentiality and Non-Disparagement Clauses After McLaren Macomb

McLaren Macomb, 372 NLRB No. 58 (Feb. 21, 2023), is the National Labor Relations Board decision holding that the mere proffer of a severance agreement containing overly broad confidentiality or non-disparagement provisions to a non-supervisory employee violates Section 7 of the National Labor Relations Act. The Board found that broadly worded provisions barring an employee from discussing the agreement's terms or making any statement that could harm the employer's image have a reasonable tendency to interfere with employees' protected right to engage in concerted activity for mutual aid and protection, and this violation exists the moment the employer offers the agreement, independent of whether the employee ever breaches the clause.

The NLRB General Counsel's Memorandum GC 23-05, issued March 22, 2023, provides guidance distinguishing lawful narrowly tailored provisions from unlawful broad ones and confirms that supervisors generally fall outside the decision's protection, since the NLRA's Section 7 rights apply to non-supervisory employees. Experts disagree on the decision's ultimate durability: labor-side commentators view McLaren Macomb as a significant employee protection, while some employer-side commentators expect continued narrowing through subsequent Board composition changes and appellate review. The decision remains subject to ongoing federal appellate review, and its long-term application beyond the specific facts of the case is not fully settled.

A severance review checks two things under this framework. The attorney confirms whether the employee holds non-supervisory status under the NLRA's definition, since that status determines whether the decision's protection applies at all. The attorney then evaluates whether the confidentiality and non-disparagement clauses are narrowly tailored to protect legitimate business interests, such as trade secrets or the settlement amount itself, rather than broadly barring any negative statement or any disclosure of the agreement's existence.

Severance Compensation, Benefits, and Tax Treatment

Severance compensation follows one of three common structures: a lump sum, salary continuation over a stated period, or a formula based on weeks of pay per year of service. Each structure interacts differently with state unemployment insurance eligibility, since some states treat salary continuation as disqualifying income during the covered period while treating a lump sum differently.

COBRA continuation coverage lets a departing employee maintain employer-sponsored health insurance at the employee's own cost for a defined period after separation, and a severance agreement negotiates whether the employer subsidizes some or all of the COBRA premium during part of that period. Severance pay is taxable as ordinary income subject to standard W-2 withholding in the majority of cases. A severance arrangement structured to pay out over multiple years, rather than at or shortly after separation, can trigger IRC § 409A's deferred compensation timing rules, and a plan that violates those rules exposes the employee to accelerated taxation and an additional 20 percent penalty tax on the deferred amount.

Restrictive Covenants and Releases in Severance Agreements

A general release of claims in a severance agreement waives the employee's right to sue the employer for claims arising before the signing date, in exchange for the severance payment offered. A review confirms the release's actual scope, since a release cannot waive certain rights as a matter of law regardless of its drafted language.

1. An employee retains the right to file a charge with the Equal Employment Opportunity Commission even after signing a release, though the release can validly waive the employee's right to recover monetary relief from that charge.
2. A release cannot waive an employee's right to file for unemployment insurance benefits, since that right derives from state statute rather than a private agreement between the employee and employer.
3. A release cannot waive a workers' compensation claim in most states, since workers' compensation rights derive from state statute independent of the employment relationship.
4. A non-compete or non-solicitation clause carried over from the original employment agreement remains subject to the same state-law enforceability standard that applied during employment, and a severance agreement does not automatically expand or contract that scope unless it says so explicitly.

What a Severance Contract Review Cannot Change

A severance contract review identifies negotiable terms, and four categories of content sit outside what negotiation can alter regardless of legal representation.

1. The OWBPA's minimum consideration and revocation periods, since these are statutory floors that apply regardless of what the parties agree to.
2. WARN Act 60-day advance notice requirements for a qualifying mass layoff or plant closing, since a severance agreement cannot retroactively substitute for notice the statute required in advance.
3. The employee's right to file an agency charge, such as an EEOC complaint, since a release can waive monetary relief from that charge but not the right to file it.
4. Unemployment insurance eligibility, since a state agency determines eligibility under state law independent of what the severance agreement states.

Common Red Flags in Severance Agreements

Common red flags in severance agreements fall into five categories, and each creates a distinct legal or financial risk.

1. A consideration period shorter than the OWBPA requires for the termination type, which can void the release as to age discrimination claims specifically.
2. An overly broad non-disparagement clause vulnerable to a challenge under McLaren Macomb for a non-supervisory employee.
3. Release language that attempts to waive the right to file an agency charge rather than only the right to monetary relief from one.
4. Vague restrictive covenant language reused verbatim from the original employment agreement without adjustment for the severance context.
5. Silence on COBRA premium subsidy during the severance period, leaving the full continuation cost on the departing employee.

Fee Structure and the Review Process

A fixed-fee severance contract review charges one set price for the full review instead of billing by the hour. The review process runs in five steps and takes three business days under standard turnaround, checked explicitly against the OWBPA's own consideration deadline so the review does not consume time the employee needs to decide.

1. Submission. The employee sends the severance agreement and any prior employment agreement containing restrictive covenants.
2. Intake. The attorney confirms termination type, individual or group, and supervisory status to apply the correct OWBPA period and NLRB analysis.
3. Review. The attorney reads the agreement clause by clause, checking the release scope, compensation terms, and confidentiality language.
4. Delivery. The attorney sends a written letter identifying risks and recommended questions within three business days under standard turnaround.
5. Discussion. The employee and attorney review the letter by phone and confirm which points the employee raises with the employer before the consideration period expires.

Severance Contract Review vs. Self-Review vs. Relying on HR's Explanation

An employee choosing between a self-review, HR's own explanation, and an independent attorney faces a different independence and analysis depth under each option. The comparison below states what each delivers on four factors that matter most before signing.

HR answers procedural questions about the severance offer accurately in most cases, and it does not substitute for independent review, since it represents the employer's interests rather than the employee's.

About the Reviewing Attorney

A qualified severance contract review attorney holds an active state bar license, concentrates a meaningful share of practice on employment law, and demonstrates familiarity with OWBPA waiver requirements and current NLRB precedent on confidentiality and non-disparagement clauses. Verification steps include confirming bar admission status through the state bar association's public record and confirming the attorney can complete the review within the applicable OWBPA consideration period.

Severance Contract Review: Complete Reference Table

Conclusion

A severance agreement can look straightforward while quietly falling short of what federal law requires, a consideration period shorter than the OWBPA demands can void the release as to age discrimination claims specifically, and a non-disparagement clause that's too broad can violate NLRB precedent the moment it's offered, regardless of whether the employee ever breaches it. Beyond the release itself, the compensation formula, COBRA subsidy, tax treatment under IRC § 409A, and any restrictive covenants carried over from the original employment agreement all shape what the severance actually delivers, which is easy to miss when reading HR's explanation alone rather than the underlying legal terms. To see how a flat-fee, attorney-led review checks your own severance agreement against these federal standards before your consideration period expires, see more here.