What You Need To Know About Severance Packages

Updated June 2026

A severance package can provide money, benefits, or other support after a job ends, but it can also require you to give up important legal rights. Before signing a severance agreement, employees should carefully review the payment terms, release of claims, unemployment language, PTO or final pay issues, health insurance, deadlines, confidentiality terms, non-disparagement language, restrictive covenants, and whether the agreement affects possible claims for discrimination, retaliation, unpaid wages, FMLA violations, harassment, or wrongful termination.

Severance is often offered after a layoff, reduction in force, termination, resignation, negotiated separation, or employment dispute. Sometimes it is offered because the employer has a severance policy, union contract, employment agreement, or company practice. Other times, severance is offered because the employer wants the employee to sign a release of legal claims.

Swartz Swidler represents employees in New Jersey, Pennsylvania, Philadelphia, and South Jersey in severance agreement review, wrongful termination, discrimination, retaliation, wage and hour, FMLA, harassment, whistleblower, and unemployment-related matters.

Questions about a severance agreement? Call Swartz Swidler at 856.685.7420 or submit an employment law claim online.

Severance Packages at a Glance

Issue	What to review	Why it matters
Payment amount	Lump sum, salary continuation, installment payments, bonus, commission, PTO, or benefits.	Different types of payments may affect taxes, unemployment timing, negotiation leverage, and final pay rights.
Release of claims	What legal claims you are giving up by signing.	You may waive discrimination, retaliation, harassment, wage, leave, or termination claims.
Unemployment	Whether the payment is true severance, salary continuation, wages, or payment in lieu of notice.	Severance may affect unemployment differently in New Jersey and Pennsylvania.
PTO and final pay	Vacation, PTO, commissions, bonuses, and wages already earned.	Severance should not be confused with money you may already be owed.
Deadlines	Signing deadline, revocation period, return date, and older-worker review rights.	Some agreements have strict deadlines, and older workers may have special review and revocation rights.

What Is a Severance Package?

A severance package is money, benefits, or other consideration offered to an employee when employment ends. It may be offered after a layoff, termination, reduction in force, restructuring, resignation, negotiated departure, or employment dispute.

Severance may include:

• a lump-sum payment;
• installment payments over several weeks or months;
• salary continuation;
• continued health insurance contributions;
• COBRA-related payments or reimbursements;
• payment for unused PTO or vacation;
• bonus, commission, or deferred compensation terms;
• stock option or equity treatment;
• outplacement or job placement services;
• a neutral reference or agreed separation statement;
• return-of-property terms;
• confidentiality or non-disparagement language;
• restrictive covenants; and
• a release of legal claims.

Not every employee is automatically entitled to severance. An employer may be required to provide severance because of a contract, severance plan, union agreement, company policy, WARN-related obligation, or other legally enforceable promise. In many situations, however, employers offer severance voluntarily or in exchange for the employee signing a release.

Is Severance the Same as a Final Paycheck?

No. Severance is different from a final paycheck. A final paycheck generally covers wages already earned for work performed. Severance is usually additional compensation offered because employment is ending or because the employer wants something in return, such as a release of claims.

Employees should separate severance from:

• regular wages already earned;
• overtime already owed;
• commissions already earned;
• bonuses that may already be due;
• expense reimbursements;
• unused PTO or vacation payout;
• salary continuation;
• payment in lieu of notice; and
• contractual compensation.

If your termination also involves unpaid vacation time, review Swartz Swidler’s guide to PTO and severance after termination.

Why Do Employers Offer Severance?

Employers may offer severance for many reasons. Sometimes the goal is to help the employee transition after a layoff. In other cases, the employer wants to reduce legal risk by asking the employee to waive claims.

Common reasons employers offer severance include:

• company layoffs or restructuring;
• reduction in force;
• plant closing or location shutdown;
• employment contract or severance plan obligations;
• union or collective bargaining agreement requirements;
• executive separation agreements;
• retirement or transition packages;
• avoidance of future disputes;
• resolution of a workplace complaint; or
• obtaining a release of claims.

The reason for the severance offer matters. A severance agreement offered after a discrimination complaint, harassment report, wage complaint, FMLA dispute, whistleblower report, or sudden termination may deserve closer review.

What Should You Review in a Severance Agreement?

Severance agreements can look routine, but the details matter. Before signing, review each section carefully and consider whether the agreement is asking you to give up rights that may be worth more than the payment being offered.

1. The amount of severance pay

Look at the total amount, how it was calculated, when it will be paid, and whether taxes will be withheld. The agreement should clearly explain whether the payment is a lump sum, installment payment, salary continuation, bonus, commission, PTO, or another type of payment.

2. The official termination date

The agreement should clearly state your last day worked and official termination date. This can affect unemployment, benefits, COBRA, retirement plan issues, commissions, PTO, and deadlines.

3. The release of claims

Many severance agreements require employees to release legal claims. This means you may be giving up the right to sue or pursue claims based on events that occurred before you signed.

A release may cover claims involving:

• wrongful termination;
• discrimination;
• sexual harassment;
• retaliation;
• FMLA or medical leave issues;
• disability or pregnancy accommodation claims;
• whistleblower claims;
• unpaid wages or overtime;
• commission or bonus disputes;
• age discrimination; and
• other employment-related claims.

If you are unsure how to explain your situation before a severance review, read Swartz Swidler’s guide on what to consider before speaking with an employment lawyer about severance.

4. Claims you may not be able to waive

Some rights may not be fully waivable, and some agreements cannot lawfully stop an employee from communicating with government agencies, filing certain administrative charges, participating in investigations, or reporting legal violations. The exact language matters.

Be cautious if the agreement appears to prevent you from reporting discrimination, wage violations, fraud, harassment, retaliation, workplace safety concerns, or other unlawful conduct to a government agency.

5. Confidentiality and non-disparagement language

Severance agreements often contain confidentiality and non-disparagement provisions. These terms may limit what you can say about the agreement, the company, your employment, or your separation.

Before signing, review whether the language is too broad, whether it limits truthful statements, whether it affects agency communications, and whether it has financial penalties for alleged violations.

6. Restrictive covenants

Some severance agreements include noncompete, nonsolicitation, confidentiality, trade secret, cooperation, or return-of-property terms. These provisions may affect where you can work, who you can contact, and what information you can use after leaving.

If the agreement includes restrictions on future employment or client contact, it should be reviewed carefully before signing.

7. Health insurance and COBRA

Severance may include continued health insurance contributions, COBRA payments, reimbursement arrangements, or a fixed period of benefits assistance. Employees should review when active employee coverage ends, when COBRA begins, who pays the premium, how long the employer contributes, and what happens if the employee gets a new job.

Health insurance language is especially important if you are receiving medical treatment, covering dependents, pregnant, on leave, recovering from a serious health condition, or transitioning between jobs.

8. PTO, vacation, commissions, bonuses, and final wages

A severance agreement may include or exclude PTO, vacation, commission, bonus, or final wage payments. Do not assume the severance amount includes everything you are owed.

Before signing, check:

• whether unused PTO or vacation is paid separately;
• whether earned commissions are included;
• whether bonus eligibility is waived;
• whether final wages are accurate;
• whether expense reimbursements are owed;
• whether overtime or unpaid wages are being released; and
• whether the agreement changes any prior compensation promise.

Can You Get Severance and Unemployment?

Possibly. Severance and unemployment can overlap, but the rules depend on the state and how the payment is structured.

In New Jersey, true severance generally is not treated as wages earned when calculating unemployment benefits. However, salary continuation through a termination date may affect eligibility because it may be treated as an extension of employment through that date.

In Pennsylvania, severance may reduce unemployment benefits if it exceeds a state threshold. The deductible portion may be allocated to weeks after separation based on the employee’s regular full-time weekly wage.

Because severance, salary continuation, wages, PTO, and payment in lieu of notice may be treated differently, employees should review the agreement carefully before assuming when unemployment benefits will begin.

For more detail, review Swartz Swidler’s guide to severance and unemployment benefits. If your employer challenges your unemployment claim after termination, review what to do when an employer contests unemployment benefits after termination.

What If You Are Over 40?

If you are age 40 or older and the severance agreement asks you to release age discrimination claims, the agreement may need to comply with the Older Workers Benefit Protection Act, often called the OWBPA. These rules are especially important in layoffs, reductions in force, group terminations, and retirement programs.

Depending on the situation, older workers may have specific review and revocation rights. For example, a release of age discrimination claims may require time to consider the agreement, written advice to consult an attorney, and a revocation period after signing. Group layoff situations may also require additional disclosures about the decisional unit, eligibility factors, job titles, and ages of employees selected and not selected.

If you are 40 or older, do not assume the agreement is valid just because the employer gave you a deadline. Review Swartz Swidler’s guide to the Older Workers Benefit Protection Act.

Can You Negotiate a Severance Package?

Sometimes, yes. Whether severance can be negotiated depends on the employer, facts, claims, leverage, deadline, position, company policy, reason for termination, and whether the employer wants a signed release.

Possible negotiation points may include:

• higher severance pay;
• different payment timing;
• health insurance or COBRA contributions;
• PTO or vacation payout language;
• commission or bonus payment;
• neutral reference language;
• non-disparagement language that protects both sides;
• removal or narrowing of restrictive covenants;
• return-of-property logistics;
• unemployment language;
• tax allocation or payment description;
• outplacement services;
• extended signing deadlines; or
• clarification of claims that are not waived.

Employees should be careful about negotiating without understanding the claims they may be releasing. A severance offer may be low compared with the value of potential legal claims, or it may be reasonable depending on the evidence and risk.

When Should You Be Extra Careful Before Signing?

A severance agreement deserves careful review when the separation followed a workplace dispute or protected activity.

Be especially cautious if you were offered severance after:

• reporting discrimination or harassment;
• rejecting sexual advances;
• requesting FMLA or medical leave;
• requesting a disability or pregnancy accommodation;
• complaining about unpaid wages or overtime;
• reporting fraud, safety issues, or illegal conduct;
• being replaced by someone outside your protected class;
• being selected for layoff after years of strong reviews;
• raising concerns to HR;
• being pressured to resign;
• being fired shortly after protected activity; or
• being told the employer will contest unemployment unless you sign.

These facts may involve wrongful termination, retaliation, discrimination, harassment, whistleblower, FMLA, or wage claims. Signing a release may affect whether you can pursue those claims later.

What Evidence Should You Save Before Signing Severance?

Severance review often depends on the documents and timeline. Save your records before you lose access to employer systems, email accounts, HR portals, or work devices.

What Should You Do Before Signing a Severance Package?

1. Read the entire agreement

Do not rely only on the payment amount. Review the release, confidentiality, non-disparagement, unemployment, benefit, PTO, tax, restrictive covenant, and deadline language.

2. Identify what you may already be owed

Separate severance from final wages, PTO, vacation, commissions, bonuses, overtime, and reimbursements. Do not give up earned compensation without understanding what is being paid.

3. Review whether you may have legal claims

Consider whether your termination followed discrimination, harassment, retaliation, medical leave, wage complaints, whistleblowing, accommodation requests, or other protected activity.

4. Check unemployment language

Look for language about resignation, misconduct, salary continuation, payment in lieu of notice, cooperation, unemployment eligibility, or employer response to an unemployment claim.

5. Review older-worker protections

If you are 40 or older, check whether the agreement includes required age-discrimination waiver language, review periods, revocation rights, and any group layoff disclosures that may apply.

6. Do not wait until the deadline

Severance review takes time. If you wait until the last day, it may be harder to review the agreement, gather documents, evaluate claims, or negotiate changes.

7. Speak with an employment lawyer

An employment lawyer can help you understand what rights you may be releasing, whether the severance offer is reasonable, whether negotiation is possible, and what changes may better protect you.

Frequently Asked Questions About Severance Packages

What is a severance package?

A severance package is money, benefits, or other consideration offered to an employee when employment ends. It may include pay, benefits, insurance contributions, PTO, job placement help, or other terms. Many severance agreements also require a release of claims.

Are employers required to offer severance?

Not always. Severance may be required by contract, union agreement, severance plan, company policy, WARN-related obligation, or another enforceable promise. In many cases, employers offer severance voluntarily or in exchange for a release.

Should I sign a severance agreement right away?

Usually no. You should review what claims you are releasing, whether you are owed final pay or PTO, how the agreement affects unemployment, whether older-worker protections apply, and whether the payment is fair in light of the facts.

Can severance affect unemployment?

Yes, depending on the state and how the payment is structured. True severance, salary continuation, PTO, wages, and payment in lieu of notice may be treated differently. New Jersey and Pennsylvania use different rules.

Can I negotiate severance?

Sometimes. Negotiation may involve more money, benefit continuation, PTO, commissions, references, non-disparagement language, restrictive covenants, unemployment language, or release terms.

What is a release of claims?

A release of claims is language stating that you give up certain legal claims against the employer in exchange for severance. It may cover claims involving discrimination, retaliation, harassment, wages, leave, termination, or other employment issues.

What is the Older Workers Benefit Protection Act?

The Older Workers Benefit Protection Act is a federal law that sets requirements for waivers of age discrimination claims by employees age 40 or older. Depending on the situation, it may require review time, attorney-consultation language, revocation rights, and group layoff disclosures.

Can a severance agreement stop me from filing for unemployment?

An employer generally should not require an employee to give up unemployment benefits. However, the agreement’s language about resignation, misconduct, salary continuation, payment type, or termination date may affect how unemployment is reviewed.

What documents should I save before severance review?

Save the severance agreement, termination letter, pay records, PTO records, benefit notices, unemployment documents, performance reviews, HR complaints, emails, texts, and any documents showing why your employment ended.

How soon should I contact an employment lawyer about severance?

As soon as possible. Severance agreements often have deadlines. Early review gives you more time to evaluate legal claims, preserve evidence, and request changes if appropriate.

Talk to an Employment Lawyer About Your Severance Package

If you were offered a severance package, Swartz Swidler can help you understand what the agreement means before you sign. Our attorneys can review whether the agreement affects your unemployment benefits, PTO, final pay, health insurance, release of claims, discrimination rights, retaliation claims, wage claims, medical leave rights, or wrongful termination options.

This page is for general informational purposes only and is not legal advice. Severance agreement, release of claims, unemployment, PTO, final pay, wage, discrimination, retaliation, medical leave, whistleblower, health insurance, COBRA, OWBPA, and wrongful termination issues depend on the facts, documents, deadlines, employer policies, applicable law, and where the claim is filed.