Hidden Dangers in Severance Agreements Most Employees Regret Later

Think Before You Sign

Losing your job isn’t just upsetting. It can throw your whole sense of stability off course. 

You’re holding a severance agreement you never expected, trying to make sense of complicated legal language during one of the most stressful moments of your career. That’s a lot to carry on your own.

Our team of business transaction lawyers and commercial contract attorneys at Horn Wright, LLP, knows how high the stakes are. We help employees take the pressure off, interpret what’s really in front of them, and make smart, confident choices. 

We’re here to protect your rights and your future.

Don’t Let Panic Make the Decision for You: Why Rushing Can Cost You Thousands

Getting handed a severance agreement after a layoff is emotional. It can feel like pressure from every direction. HR wants a signature, your benefits are ending, and your inbox is already filling up with questions from friends and family. But one of the biggest and most costly mistakes employees make in this moment is rushing.

Taking even a few extra days can change everything.

You could unknowingly give up your right to take legal action

Severance agreements almost always include a release of claims. In plain English, that means once you sign, you may be waiving your right to bring legal action for things like unpaid wages, discrimination, or wrongful termination. 

This might seem harmless if everything felt professional but if something shady happened during your employment, signing too fast could wipe away your ability to do anything about it.

The waiver language can be complex and often includes terms you might not notice, like “known and unknown claims.” That’s broad, and it’s dangerous if you don’t fully understand what you’re giving up. 

These rights are yours. Don’t sign them away without fully understanding the impact. 

You might be leaving serious money and benefits on the table

Employers typically offer a standard package, but “standard” doesn’t mean “final.” If you’ve been with the company for several years, held a leadership role, or are part of a mass layoff, there may be more money available. You just have to ask.

We’ve seen employees in New York negotiate from two weeks of severance per year worked to four weeks or even six. Others have secured performance bonuses, commission payments, and even stock vesting that wasn’t included in the original offer. If you don’t ask, you won’t get it.

Also, don’t forget about unused vacation or paid time off. Some employers “accidentally” omit that from the severance payout. Don’t assume it’s included. Confirm it in writing.

Health coverage could end before you're ready

The Consolidated Omnibus Budget Reconciliation Act (COBRA) is an option, but it’s expensive, especially in NYC. A solo COBRA plan can run over $700/month, and family coverage can climb into the thousands. If you’re not prepared for that gap in coverage, a medical emergency during your transition could lead to enormous out-of-pocket costs.

The good news? Many employers are willing to help cover a few months of premiums, if you ask. It’s often cheaper for them than providing extended health benefits and shows goodwill on their part. Make sure your agreement clarifies how long your current coverage lasts and when COBRA kicks in.

Also, keep an eye out for eligibility-related issues. If you’re changing states, starting your own business, or looking at ACA marketplace plans, the timing of your severance and COBRA options could affect when and how you qualify for coverage.

Look Closer: Vague Clauses and Tricky Language Can Cost You Later

On the surface, severance agreements might seem short and straightforward. But beneath the surface, there are often clauses that limit your future, long after your employment ends.

Watch for these:

• Unclear timelines and phrases like “reasonable period.” This might sound fair, but it’s intentionally vague. A “reasonable” time could be interpreted to mean anything, which means you're agreeing to something with no real end in sight.
• Non-compete clauses with no geographic limits. Some employers will bar you from working “anywhere the company operates,” which could mean all of New York, or beyond. This especially matters if you’re stepping into your own business or working with another firm. If you're considering business formation legal services, you’ll want this language reviewed closely.
• Broad confidentiality language that restricts your voice. Some clauses say you can’t talk about “company practices” or “internal information,” even when it’s about your own role. That could limit your ability to speak with recruiters or use your accomplishments in interviews.

You’re not being difficult by asking questions. You’re being smart.

Don’t Assume It’s Final: Why Negotiating Your Severance Matters

There’s this idea that once you’re handed a severance agreement, it’s take-it-or-leave-it. Not true. In fact, negotiation is expected, especially if you’ve been with the company a while or held a leadership role.

Here’s what’s worth negotiating:

• More severance pay. Standard offers might include two weeks of pay per year worked, but that’s a starting point, not a legal limit. If you’ve been in a management role, contributed significantly, or are part of a mass layoff, there’s usually room to increase the offer. We've seen employees triple their package just by asking the right way.
• Lump sum vs. paycheck-style payments. Some companies prefer to pay severance in installments, mimicking a regular paycheck. But for many employees, getting the full amount in a lump sum offers more flexibility, especially when budgeting during a transition. Just keep in mind that a lump sum could impact your taxes differently, so it’s worth reviewing with a financial advisor.
• COBRA premium support. Health coverage gaps can be incredibly stressful. You can ask your employer to cover part or all of your premiums for a set time (usually 3–6 months). Many employers will agree to this if you bring it up, especially if they want to maintain goodwill.
• A written reference or agreement on job verification. Your next employer will likely check in with your former one. Getting a positive or neutral reference in writing can make your job search smoother and less stressful. Ask them to agree to basic language or provide a letter that highlights your contributions.

Would you sign a business sale and purchase agreement in New York without understanding every term? Of course not. Your severance deserves the same level of care and negotiation.

It’s Not Just the Paycheck—Severance Can Impact Your Finances in Ways You Don’t Expect

It’s not just about what you receive. It’s about how it’s structured, when it’s paid, and what it triggers. A severance deal can quietly affect your taxes, benefits, and long-term financial health if you’re not careful.

Taxes hit harder than expected.

 Severance is taxed like a bonus. Your employer may only withhold 22% federally, but you could owe much more, depending on your income.

If you’re also receiving a final paycheck, vacation payout, or a signing bonus from a new job, those amounts can stack and inflate your tax bill. It’s easy to assume your taxes are covered, until the Internal Revenue Service (IRS) says otherwise.

Unemployment benefits might be delayed.

In New York, severance that’s paid over time (or tied to a specific period) can delay your eligibility for unemployment benefits. A lump sum with no time allocation? Often a better bet.

The Department of Labor may interpret structured severance as continued income, making you ineligible for weeks or even months. If you need immediate support, this delay can create serious cash-flow problems. 

Some tax credits or aid may disappear.

Severance might push your total annual income higher, enough to disqualify you from benefits or deductions you’d usually get.

That could include things like the Child Tax Credit, student loan repayment breaks, or marketplace healthcare subsidies. What looks generous upfront could quietly cost you thousands later on.

Protect What You’ve Earned and Get the Exit You Deserve

You’ve worked hard. You’ve built relationships, contributed value, and given your time. Your exit should reflect that. 

Details matter. Reading between the lines matters more. At Horn Wright, LLP, we help professionals throughout New York City understand what’s in front of them and what’s possible. 

Our business transaction lawyers know how to catch red flags, push back when needed, and structure agreements that leave you empowered. 

We’re proud to be named one of the leading law firms in America, because every case deserves that level of attention. Let’s bring the same care and clarity to your severance negotiations.

Contact our office today to schedule your complimentary case review.