Terminating an employee isn’t easy.
Doing it without adequate legal protection in place is just plain dangerous — and expensive.
Business owners who terminate employees without a severance agreement are taking an extreme risk of lawsuits, bad press, and liabilities that could haunt their business for years. And right now, this kind of risk is entirely avoidable. According to their recent news release, the EEOC secured nearly $700 million for workplace discrimination victims in FY 2024.
A severance agreement takes the risk out of terminating an employee.
Severance agreements are one of the most powerful — and underutilized — legal tools a business can have. When terminating an employee who has made sexual harassment allegations, a severance agreement is the safest bet for limiting future liability. A business owner should consult their Los Angeles employment lawyer prior to drafting a severance agreement — especially when terminating an employee who is alleging sexual harassment in the workplace, retaliation, or hostile work environment. Failing to have an attorney review the language of a release of claims can leave a severance agreement entirely unenforceable.
It’s not cheap to have an attorney help with severance agreements. But compared to what gets spent dealing with litigation, it’s pennies on the dollar.
Here’s what you’ll learn:
- What Is a Severance Agreement?
- Why Severance Agreements Are More Important Than Ever
- What to Include In Your Severance Agreement
- 4 Mistakes That Put Businesses at Risk
- When To Contact An Employment Lawyer
What Is a Severance Agreement?
A severance agreement is a contract between an employer and an employee who is about to be terminated.
The agreement outlines the specifics of the employee’s termination — and in exchange for agreement (literally), the business owner receives a signed legal document stating that the employee cannot pursue further legal action against the company. In general, severance agreements will include:
- An agreed upon financial payout
- A release of all claims barring future lawsuits against the company
- Non-disparagement clauses for both parties
- Agreement to keep company secrets, client lists, internal processes, etc.
Essentially, a severance agreement allows both the employer and employee to part ways on mutually agreed upon terms — and protects the employer from any future legal claims the employee could bring.
Why Severance Agreements Are More Important Than Ever
Want to know why a severance agreement is really needed these days?
Employment laws have changed — and EEOC charges of workplace discrimination rose to 88,531 overall in FY 2024. That’s up over 9% from last year. Sex-based claims, which include allegations of sexual harassment in the workplace, made up close to half of all EEOC filings in FY 2024.
This can’t be stressed enough:
If an employee is terminated without a severance agreement, that employee can sue for wrongful termination — or settle with the business after suing for wrongful termination — years down the road. And if the termination is related to sexual harassment in the workplace? The lawsuits can cost six figures.
Legal ramifications aren’t going away. In fact, they’re only getting tougher.
What to Include in a Severance Agreement
Hold up. A severance agreement doesn’t have to be one-size-fits-all.
Here’s what every severance agreement should include:
1. Severance Pay
Say what you will about cashing out an employee, but everyone loves a paycheck. This is the amount being offered to the employee in exchange for their signature on the agreement. According to the 2025 data, the average severance package hit 19.3 weeks of salary across industries in 2025. That’s a 24% increase from 2024.
Don’t know what to offer? An employment lawyer can help determine what number makes sense for the business.
2. Release of All Claims
This pretty much says what it sounds like:
In exchange for severance pay, the employee releases the company from any claims of wrongdoing during their employment. Need this in layman’s terms? If they don’t sign this agreement, they can sue. Plain and simple.
It’s also worth noting that this clause is incredibly important with cases of sexual harassment in the workplace. The language here needs to be watertight, or the risk is that the employee finds every loophole they can to sue in the future.
3. Non-Disclosure / Confidentiality Clause
Again, this one should be obvious, but the agreement should cover:
- Trade secrets
- Internal processes
- Client lists
- Proprietary data
Any information that shouldn’t be shared outside of the company needs to be covered here.
4. Non-Disparagement Clause
This one’s new, right?
Here’s the deal. Both the employer and the employee agree to not speak poorly about the other — to anyone.
A former employee bad mouthing the business after they’re gone is the last thing anyone needs (especially if they were fired for cause), and chances are the employee doesn’t want that either. Make it mutually beneficial and both parties win.
5. Agreement to Review Period
Give the employee enough time to review the agreement.
Federal law states that employees are entitled to 21 days to review the agreement and 7 days to revoke their agreement. Though not every state uses ADEA standards, most adhere to this timeframe anyway. By pushing an employee to sign without review, a judge can invalidate the entire agreement.
Common Mistakes That Put Businesses at Risk
Okay. So where do most employers go wrong?
Rolling waiver. Don’t let the employee sign the agreement on the spot. Both parties need to agree to the separation — under fair terms. If a court decides the agreement was signed under duress, it won’t stand.
Using a template. Do not use a severance agreement found on Google. State laws vary greatly on employment matters. California, in particular, has some of the most employee-friendly laws in the country. If an agreement was drafted in Texas, there’s a good chance it won’t hold up if challenged in court.
Retaliation risks. Was the employee terminated due to raising a complaint about sexual harassment in the workplace? Care is needed in how severance is offered in that specific situation. Offering severance could be looked at as retaliatory, or implying the business was at fault.
Not getting it reviewed by an attorney. Believe it or not, roughly 90% of organizations offer severance packages to their employees. However, just because one is offered doesn’t mean it’s ironclad. Ensure the business isn’t left vulnerable by having an employment lawyer review the agreement before presenting it to the employee.
When To Contact An Employment Lawyer
The answer? Immediately.
An employment attorney can:
- Ensure the release of claims is legally enforceable from day dot
- Protect the business in situations involving severances due to sexual harassment in the workplace
- Help understand state vs. federal law compliance
- Help the business avoid any future legal exposure
Contact an employment lawyer as soon as it’s known that an employee will be terminated. California employment law is no joke. Not only is it constantly changing — it’s written primarily to employee benefit.
All Said and Done
Simply put: severance agreements are a business’s best friend.
They limit exposure as a business, and can provide invaluable protection if a terminated employee sues the company. And if an employee who has made allegations of sexual harassment in the workplace is being terminated? A severance agreement is an absolute necessity.
They’re not guaranteed to prevent a lawsuit. But they sure do make the business a harder target.
