If you’re 40 or older and your employer hands you a severance agreement, federal law gives you protections that younger workers don’t get. A severance agreement for a worker over 40 that asks you to release age discrimination claims has to satisfy eight specific requirements under the Older Workers Benefit Protection Act, including a written recommendation to consult a lawyer, a review period of at least 21 or 45 days, and a seven-day window to change your mind after signing. Miss any one of those elements and the age discrimination release is void, which means you can keep the severance money and still sue.
The Eight Requirements Your Agreement Must Meet
The OWBPA amended the Age Discrimination in Employment Act to define exactly when a release of age claims is “knowing and voluntary.” Under 29 U.S.C. § 626(f)(1), a waiver fails unless every one of these conditions is satisfied:1Office of the Law Revision Counsel. 29 US Code 626 – Recordkeeping, Investigation, and Enforcement
- Plain language an average person in the affected group can understand.
- An explicit reference to rights or claims under the ADEA. A generic release covering “all federal claims” is not enough.
- No waiver of future claims. The release can only reach conduct that occurred up to the date you sign.
- Consideration beyond what you’re already owed. Accrued vacation, vested retirement benefits, and earned wages don’t count.
- A written advisory telling you to consult a lawyer before signing.
- At least 21 days to review the agreement (45 days for a group layoff or exit incentive program).
- At least seven days after signing to revoke.
- For group layoffs, written disclosures listing which employees were selected, their ages, and the ages of those who were not selected.
Courts treat this as an all-or-nothing test. Seven of eight is not a passing grade.
What Counts as Consideration
The consideration requirement catches employers off guard more than any other individual element. The severance payment has to represent something extra, offered specifically in exchange for the release. If you’d receive the money regardless — a payout for accrued PTO in a state that requires it, a vested pension, wages for hours already worked — that money isn’t consideration for the waiver. The check needs to be a genuine additional payment tied to your signature.2U.S. Equal Employment Opportunity Commission. QA-Understanding Waivers of Discrimination Claims in Employee Severance Agreements
How Long You Have to Review: 21 or 45 Days
The review period depends on the context. For an individual termination, you get at least 21 days. When the waiver is part of a group layoff, a reduction in force, or a voluntary exit incentive program, the minimum jumps to 45 days.1Office of the Law Revision Counsel. 29 US Code 626 – Recordkeeping, Investigation, and Enforcement
The clock starts when the employer delivers the final agreement. You can sign earlier if you want, but the employer cannot pressure you to. If the employer makes a meaningful change to the offer during the window, the period restarts. The parties can agree in advance that minor, immaterial changes won’t reset the clock, but a substantive revision to the money or the scope of the release triggers a new count.3eCFR. 29 CFR 1625.22 – Waivers of Rights and Claims Under the ADEA
Shortening the review period, even with the employee’s apparent consent, puts the entire waiver at risk. These minimums are not negotiable.
The Seven-Day Revocation Window
Signing does not close the deal. After you sign, you have at least seven calendar days to revoke, and neither side can shorten or waive that period. The agreement takes legal effect on the eighth day.1Office of the Law Revision Counsel. 29 US Code 626 – Recordkeeping, Investigation, and Enforcement
To revoke, deliver written notice to the employer before the window closes. Most agreements specify exactly where and how to send that notice, so read the language carefully. Employers typically hold back severance payments until the revocation period expires. If you revoke, the agreement is void: you owe nothing back, but you also forfeit the severance and keep your right to sue.
Extra Disclosures Required for Group Layoffs
When the severance offer goes to a group of employees as part of a layoff or exit incentive program, each affected worker must receive written disclosures at the start of the 45-day review period. The disclosures must include:
- A description of the decisional unit — the department, division, or organizational group the employer selected from.
- The eligibility factors the employer used.
- The job titles and ages of every individual eligible for or selected for the program.
- The ages of everyone in the same job classification or unit who was not selected.
The point is to make age patterns visible. If everyone over 55 in your unit was cut and everyone under 40 was kept, the numbers show it. Without the disclosures, you’d have no way to evaluate whether the layoff targeted older workers. Incomplete, misleading, or late disclosures can undo the entire release, and this is the area where employers most often stumble because assembling accurate age and title data across a large organization takes real coordination.3eCFR. 29 CFR 1625.22 – Waivers of Rights and Claims Under the ADEA2U.S. Equal Employment Opportunity Commission. QA-Understanding Waivers of Discrimination Claims in Employee Severance Agreements
If the Employer Botches It, You Keep the Money and Can Still Sue
A defective OWBPA waiver doesn’t just weaken the employer’s position. It collapses. The Supreme Court held in Oubre v. Entergy Operations that an employee who signed a release that failed OWBPA requirements did not have to return the severance money before filing an age discrimination lawsuit. The Court rejected the employer’s argument that keeping the payment ratified the defective agreement.4Cornell Law Institute. Oubre v Entergy Operations Inc 522 US 422 1998
This is the practical payoff. If the agreement omits the ADEA reference, skips the attorney consultation advisory, gives you only 14 days to review instead of 21, or fails on the group disclosures, the age discrimination release is void. You keep the check. You can still sue. The employer cannot use your acceptance of the payment as a defense because the statute, not general contract principles, controls whether the waiver is valid.
Rights You Cannot Sign Away
Even a flawless agreement cannot extinguish certain rights. The most important: you always keep the right to file a charge with the EEOC, cooperate with an EEOC investigation, or testify in EEOC proceedings. Any clause that tries to block those actions is unenforceable.2U.S. Equal Employment Opportunity Commission. QA-Understanding Waivers of Discrimination Claims in Employee Severance Agreements
There’s a distinction worth understanding. Your right to file a charge is untouchable, but you can waive your right to personally recover money — whether through your own suit or through one the EEOC brings on your behalf. A valid waiver doesn’t prevent the EEOC from investigating your former employer; it can prevent you from collecting damages from that investigation.
Fair Labor Standards Act claims for unpaid wages or overtime cannot be waived through a standard severance release. Workers’ compensation rights and the right to file for unemployment benefits also remain intact, regardless of what the agreement says.
When a waiver is part of settling a charge already filed with the EEOC or a lawsuit already in court, the review-period rules relax. Instead of the full 21 or 45 days, you get a “reasonable” amount of time. The other core requirements still apply.1Office of the Law Revision Counsel. 29 US Code 626 – Recordkeeping, Investigation, and Enforcement
Watch the Non-Disparagement Clause
Most severance agreements contain a non-disparagement clause, and most people sign them without reading closely. The National Labor Relations Board ruled in McLaren Macomb that severance agreements with sweeping non-disparagement and confidentiality provisions can violate employees’ rights under the National Labor Relations Act. The Board’s position is that offering an agreement that forces employees to broadly surrender their right to discuss workplace conditions is itself an unfair labor practice.5National Labor Relations Board. Board Rules That Employers May Not Offer Severance Agreements Requiring Broad Waiver of Rights
In practice: a clause that prevents you from saying anything negative about the company, ever, to anyone, is likely unenforceable if you’re covered by the NLRA, which most private-sector employees are. A narrower clause limited to false statements, or one with carve-outs for government agencies and legal proceedings, is on firmer ground. If the language could stop you from discussing working conditions with former coworkers or filing a complaint with a government agency, push back on the wording.
What Else to Negotiate Besides the Cash
The dollar amount gets the most attention, but non-cash terms often deliver more value. Health insurance is usually the most immediate worry. COBRA lets you continue employer-sponsored coverage for up to 18 months, but you pay the full premium plus a 2% administrative fee, and the cost is often startling. Getting the employer to subsidize several months of COBRA premiums can be worth thousands and is often easier to secure than a bigger severance check because it costs the company less than the equivalent cash.
Other items worth pushing on:
- Outplacement services. Quality varies, so ask what the service actually includes before treating it as valuable.
- A neutral reference clause limiting the company to confirming your dates of employment and title.
- Accelerated vesting of unvested stock options or RSUs, particularly important where equity is a large share of total compensation.
- Explicit treatment of unused PTO. Some states require payout regardless; many don’t.
The OWBPA review period is built-in leverage. Employers expect counteroffers during the 21 or 45 days, and using that time is not unreasonable.
Tax and Unemployment Consequences
Severance is taxable income. The IRS treats it as supplemental wages, so your employer will withhold federal income tax at a flat 22% if the payment is made separately from your regular paycheck. If your total supplemental wages in a calendar year exceed $1 million, the rate on the amount above that threshold is 37%. Social Security and Medicare taxes also apply.6Internal Revenue Service. Publication 15 2026 Circular E Employers Tax Guide
The 22% is withholding, not your final tax liability. Your actual rate depends on total income for the year, and a large severance layered on top of wages already earned can push you into a higher bracket. Consider an estimated payment or an adjustment to withholding at a new job. Some employers will agree to split the payment across two calendar years to soften the tax hit, which is worth asking about.
Unemployment treatment depends entirely on your state. Some states let you collect immediately regardless of severance. Others treat a lump sum as continued wages and delay eligibility for the equivalent number of weeks at your prior salary. A few reduce your weekly benefit by a portion of the severance. If your employer offers a choice between a lump sum and salary continuation, the structure you pick can change when benefits begin. Call your state unemployment office before accepting a particular payment format. Signing the agreement does not waive your right to file for unemployment, regardless of any language suggesting otherwise.