Before You Sign That Severance Agreement

What Pennsylvania employers need to get right.

Severance agreements look straightforward. The employer pays the departing employee something — a few weeks of salary, sometimes more — in exchange for a release of claims and a few standard promises about confidentiality and non-disparagement. Most small businesses pull a template from a prior matter, fill in the names and numbers, and send it out.

That approach has gotten more expensive over the last few years. Federal law, state law, and recent decisions from the National Labor Relations Board have all narrowed what severance agreements can do — and the language that worked five years ago often does not work today. Four issues come up most often.

1. Releases of age claims have specific rules

If the departing employee is forty or older, any release of federal age discrimination claims (under the ADEA) must comply with the Older Workers Benefit Protection Act. OWBPA requires specific language, a 21-day consideration period (45 days in a group reduction in force), a 7-day revocation period, and a written recommendation that the employee consult an attorney.

These requirements are not technicalities. A release that misses any of them is unenforceable as to age claims — meaning the employer pays the severance and still gets sued for age discrimination. For group layoffs, OWBPA also requires the employer to provide detailed information about the ages and job titles of the people selected and not selected. Getting that disclosure wrong is one of the more common reasons severance agreements fail.

2. Confidentiality and non-disparagement clauses have shrunk

In 2023, the NLRB ruled in McLaren Macomb that overly broad confidentiality and non-disparagement provisions in severance agreements can themselves violate federal labor law — even when the employee is non-union and not in a traditional NLRB-covered role.

The decision applies to most non-supervisory private-sector employees. Provisions that prohibit the employee from discussing the agreement with anyone, or that broadly restrict the employee from making any negative statements about the company, are now risky. Properly drafted versions — narrower in scope, with carve-outs for protected activity — are still enforceable, but the standard form most employers used before 2023 is not.

3. Trade secret notice that most agreements omit

The federal Defend Trade Secrets Act requires employers to include a specific notice in any agreement governing the use of trade secrets or confidential information — telling the employee they have immunity from liability for disclosing trade secrets to government officials or attorneys in connection with reporting a violation of law.

If the notice is missing, the employer loses the right to recover exemplary damages and attorney's fees in any later trade secret lawsuit against that employee. Many severance agreements still do not include this language. The fix is one paragraph; the cost of leaving it out can be the difference between a meaningful recovery and a Pyrrhic one.

4. Carve-outs for protected rights

Releases routinely include language giving up "all claims" against the employer. That language has to be paired with carve-outs for rights that cannot legally be released — the right to file a charge with the EEOC or a state human relations commission, the right to participate in a government investigation, the right to receive earned but unpaid wages, the right to vested retirement benefits, and others.

Without the carve-outs, the release may be partially or wholly unenforceable, and federal and state agencies have repeatedly criticized employers who use overbroad language. The fix is straightforward, but it requires actually reviewing what is in the form.

Worth a fresh set of eyes

Severance agreements are one of the most cost-effective places for a small business to get legal advice. The cost of a one-hour review is small relative to the cost of an unenforceable release, a McLaren Macomb claim, or a trade secret case stripped of its strongest remedies. If the form has not been updated in the last two years, it is almost certainly time.

This article is provided for general informational purposes only and is not legal advice. To discuss a specific employment matter, contact the Law Offices of Joel B. Albert, P.C. at 484-562-0473 or joel@albertlaw.com.