A severance package can feel like a straightforward resolution to a difficult transition. In practice, signing too quickly without legal review can cost far more than the severance is worth. Employer-drafted agreements are designed to protect the company, and several common provisions deserve close attention before you sign.
Five red flags to review before signing
1. Overbroad release of claims
A standard release covers claims related to the termination itself. Watch for language that also surrenders unvested equity, deferred compensation, or earned bonuses. A properly negotiated release should carve out vested benefits, indemnification rights under corporate bylaws, and outstanding expense reimbursements.
2. Non-disparagement and confidentiality terms
Non-disparagement clauses are standard, but overly broad language can restrict you from discussing your professional experience with future employers. Under the Illinois Workplace Transparency Act, confidentiality provisions related to harassment or discrimination claims carry specific requirements, including mutual applicability and adequate consideration. Any such provisions should be reviewed carefully before signing.
3. Non-compete and non-solicitation covenants
Restrictive covenants sometimes appear for the first time in a severance agreement. According to the Illinois Freedom to Work Act, non-compete agreements are only enforceable above specific income thresholds and must meet reasonableness standards for scope and geography. Accepting broad restrictions in a severance document can limit your options in the Chicago market for years.
4. Equity and incentive pay treatment
If the agreement is silent on vested stock options, restricted stock units, or long-term incentive plans, or if it characterizes your departure as a resignation rather than a termination, significant compensation may be at risk. Review how each element of your executive compensation package is treated before agreeing to any terms.
5. Age claim waivers and the OWBPA review period
For executives aged 40 and older, the Older Workers Benefit Protection Act requires a minimum 21-day review period for individual separations, or 45 days in group layoff situations, along with a 7-day revocation window after signing. Severance pay must also constitute genuine additional consideration beyond final wages to be enforceable under Illinois law.
Each of these provisions can carry long-term financial and professional consequences that are not always apparent at first read.
Before you sign
Severance agreements are negotiable documents, not final offers. If you are facing a separation in the Chicago area, an employment law attorney can review the terms, identify provisions that require revision, and help you protect your interests before you commit.