Executive Severance: What to Review Before You Sign

The meeting is short. Someone from HR is in the room, the CEO looks at the table, and a folder slides across with a severance agreement inside. Often there's a polite suggestion that it would be best to sign it soon.

Don't. Not that day, and not before someone on your side has read it. In my experience, the first severance offer is rarely the last one, and what's in the fine print can matter more than the number on the first page.

You almost always have time.

If you're 40 or older and the agreement releases age discrimination claims, federal law generally gives you at least 21 days to consider it, or 45 days in a group layoff, plus 7 days to change your mind after you sign. Even when that rule doesn't apply, asking for a reasonable review period is normal and expected.

The company had a lawyer write this agreement. You should have one read it.

What to review, line by line

• The release. Severance is almost always exchanged for giving up your right to sue. Before you give up claims, understand which ones you might have: unpaid compensation, discrimination, retaliation, whistleblower protections, or a breach of your employment agreement.
• Your equity. This is where executives leave the most money behind. Check what's vested, whether anything accelerates, how long you have to exercise options after you leave (often just 90 days unless negotiated), and whether the company can repurchase your shares.
• Your bonus. Is a bonus you've largely earned for this year being paid, prorated, or quietly forgotten?
• Restrictive covenants. Non-competes, non-solicitation and confidentiality terms. Their enforceability varies a lot by state. California, for example, generally won't enforce employee non-competes. Don't agree to new restrictions without knowing what they cost you.
• Non-disparagement. If you can't criticize the company, can it criticize you? Ask for it to be mutual, and ask who exactly is bound by it.
• Health coverage. Will the company pay for continued health insurance, and for how long?
• How your departure is described. "Terminated for cause," "resigned" and "position eliminated" mean very different things for your reputation and sometimes for your equity. Agree on the internal announcement and a reference.
• Strings attached. Cooperation clauses, clawbacks, and terms that let the company stop paying if it decides you've breached.
• Taxes. The timing and structure of severance payments can carry real tax consequences. Have it reviewed.

Most of this is negotiable.

Companies expect executives to negotiate, and many build room into the first offer. Your leverage may include claims you could bring, knowledge the company needs for the transition, the timing of a deal or announcement, and the company's interest in a quiet, clean exit.

Who should read it.

The agreement was written to protect the company, by people who do this often. Match that. Look for an employment lawyer who regularly sits on the executive's side of the table and understands how equity plans actually pay out. Someone who negotiates these every week will catch the clauses a generalist reads past.

Where Lexmatch fits.

A severance deadline leaves little room for a careful search. Lexmatch narrows the field to lawyers whose record is in executive exits, not employment law in general. With Lexmatch Elite, a Lexmatch attorney stays with you through the negotiation: weighing the candidates with you, reviewing the fee, and checking in until the agreement is signed.

This article is general information, not legal or tax advice. Rules vary by state and by agreement.