A severance agreement is a legally binding contract between you and your employer that outlines compensation and conditions when your employment ends. A severance agreement can affect your pay, benefits, and legal rights. In Texas, you have the right to review, negotiate, and decline the agreement before signing.
What a Severance Agreement Typically Includes
A severance agreement is more than just a final paycheck. It often includes several terms that can impact your financial situation and future employment opportunities.
Common provisions include:
- Severance pay: A lump sum or continued salary for a set period.
- Benefits continuation: Health insurance coverage for a limited time.
- Release of claims: Agreement not to sue the employer.
- Confidentiality terms: Restrictions on sharing details about the company or agreement.
- Non-compete or non-solicitation clauses: Limits on future employment options.
Each of these terms can have long-term consequences, especially if you are not aware of what you are giving up in exchange for the severance pay.
Why Employers Offer Severance Agreements
Employers are not generally required to offer severance pay under Texas or federal law. Instead, these agreements are commonly used to reduce legal risk for the company. An employer may offer severance to resolve potential disputes before they become lawsuits, to provide financial support during layoffs, or to secure confidentiality around internal matters. In most cases, the employer’s goal is to create a clean break while limiting future liability.
Your Right to Review Before Signing
You are not required to sign a severance agreement immediately. In fact, taking time to review the terms is one of the most important steps you can take.
If the agreement involves waiving age discrimination claims under the Age Discrimination in Employment Act (ADEA), federal law requires that you be given time to consider the agreement. Under the Older Workers Benefit Protection Act, employees aged 40 or older must be given at least 21 days to review the agreement and a 7-day revocation period after signing.
Even if these timelines do not apply to your situation, you still have the right to take time to understand the agreement and seek advice before committing to anything.
What You May Be Giving Up
One of the most significant parts of a severance agreement is the release of claims. This section typically requires you to waive your right to bring legal action against your employer. This may include claims related to:
- Discrimination based on protected factors
- Harassment, including hostile work environment claims
- Retaliation for reporting misconduct or unlawful behavior
- Wage disputes over unpaid overtime or misclassification issues
Signing the agreement usually means you cannot pursue these claims later, even if you discover additional issues after the fact.
Can You Negotiate a Severance Agreement?
Yes, severance agreements are often negotiable. Employers may present the agreement as final, but that does not mean the terms cannot be discussed. Areas that may be open to negotiation include:
- Amount of severance pay and payment structure
- Duration of continued health benefits
- Reduction of non-compete terms
- Quality of former employer references
Negotiating can help ensure that the agreement better reflects your needs and circumstances.
How Texas Law Interacts With Severance Agreements
Texas generally follows the employment-at-will doctrine, meaning employers can terminate employees for almost any lawful reason. Once a severance agreement is offered, however, it becomes a contract governed by Texas law. Courts will typically enforce a severance agreement that was signed voluntarily, contains clear and specific terms, is supported by something of value exchanged between both parties, and does not violate public policy. If any of those elements are missing, the agreement may be subject to challenge.
Non-Compete Clauses in Severance Agreements
Some severance agreements include non-compete provisions that limit where and how you can work after leaving your job. In Texas, non-compete agreements are governed by Texas Business and Commerce Code § 15.50.
To be enforceable, a non-compete must be:
- Reasonable in scope: Limited to specific activities.
- Limited in time: Not excessively long.
- Restricted geographically: Tied to a relevant area.
- Supported by consideration: Connected to a valid agreement.
Overly broad restrictions may not hold up in court, but they can still create uncertainty and complicate your job search if not reviewed carefully before signing.
Common Mistakes Employees Make
Many employees sign severance agreements quickly without fully understanding the consequences. Signing before taking time to review the terms is one of the most common errors, and it often means missing non-compete or confidentiality obligations buried in the fine print. Employees also frequently accept the first offer without comparing it against their tenure, position, or the strength of any potential legal claims. A severance package that seems generous on the surface may leave significant compensation or legal remedies on the table.
Before signing any agreement, request clarification on anything that is unclear, and get responses in writing.
How Severance Agreements Affect Future Employment
Severance agreements can influence your professional path long after your employment ends. Non-compete clauses may restrict the roles or industries available to you, while non-solicitation terms can affect your ability to maintain relationships with former clients or colleagues. Confidentiality provisions may limit what you are permitted to say about your experience, which can affect how you present yourself during a job search.
The structure of severance payments can also affect your short-term financial stability, particularly when payments are spread across several months rather than paid in a lump sum. Reviewing each of these provisions carefully before signing gives you a clearer picture of what the agreement actually costs you.
Always Speak With an Employment Lawyer Before You Sign
If you have been offered a severance agreement, reviewing it carefully with a legal professional before signing can protect rights you may not realize you have. Our employment attorneys at The Galo Law Firm help employees in San Antonio evaluate severance agreements, identify potential risks, and negotiate better terms when appropriate. Call (210) 764-6135 or contact us online to discuss your situation before making a final decision.