Severance Agreements and Releases in New York: What You Give Up When You Sign

The New York State Labor Law does not require an employer to pay severance where there was no written or oral policy or agreement, according to the State Department of Labor.⁠^[1] A severance offer can come with a release: a contract term in which the employee gives up the right to sue. The EEOC says a valid agreement offers consideration, such as additional compensation, in exchange for the employee's waiver of the right to sue.⁠^[2]

This guide explains what a release covers, what it cannot cover, and the federal and New York State rules that limit what an employer may put in one. It is written for employees reading an offer and for employers preparing one.

Is severance required in New York?

The New York State Department of Labor states that if there was no written or oral policy or agreement, New York State Labor Law does not require an employer to provide severance pay.⁠^[1] The same agency describes New York as an at-will employment state, where an employer without a contract restricting termination may generally discharge an employee for any reason or no reason, provided it is not illegal retaliation or discrimination.⁠^[7] The guide to at-will employment in New York covers that rule and its limits.

Some payments at the end of a job are not severance at all. Final wages, the written termination notice and health coverage continuation follow their own rules, set out in the guide to final pay, health insurance and notices when a job ends.

What makes a release valid?

Under federal law as the EEOC summarizes it, a waiver in a severance agreement is generally valid when the employee knowingly and voluntarily consents to it.⁠^[2] For federal age claims the conditions are set by statute; for other federal laws such as Title VII, the EEOC says the rules come from case law.⁠^[2]

The EEOC says most courts deciding whether a release of Title VII, ADA or Equal Pay Act claims was knowing and voluntary look at all the circumstances, including:⁠^[2]

• whether the release was clear and specific enough for the employee to understand;
• whether it was induced by fraud, duress, undue influence or other improper conduct;
• whether the employee had enough time to read and think about it;
• whether the employee consulted an attorney, or was encouraged or discouraged from doing so;
• whether the employee had any input in negotiating the terms; and
• whether the employer offered more than the employee was already entitled to.

The EEOC says the consideration for a waiver cannot simply be a pension benefit or payment for earned vacation or sick leave the employee is already owed; it has to be something of value in addition.⁠^[3]

The EEOC document describes waivers under the federal laws it names: the age law, Title VII, the ADA and the Equal Pay Act.⁠^[2] The New York State limits on releases and confidentiality terms are set out below.

What can a release not take away?

Right	Rule	Layer
Filing a charge with the EEOC and taking part in its investigations	The EEOC says no agreement can limit these rights, and a waiver provision that tries is invalid and unenforceable.⁠[4]	Federal
Claims that arise after the signing date	The EEOC checklist says to confirm the agreement does not waive rights or claims arising after signing.⁠[3]	Federal
Unemployment, workers' compensation, Fair Labor Standards Act, COBRA and vested retirement benefits	The EEOC checklist says to make sure the employer is not asking for a release of these.⁠[3]	Federal guidance
Cooperating with a government agency, and giving facts needed for unemployment insurance, Medicaid or other public benefits	A confidentiality term in a discrimination settlement is void to the extent it restricts these.⁠[8]	New York State

The EEOC statement in the first row is about filing a charge and participating in the agency's proceedings; it does not say what can be recovered afterward.⁠^[4]

What extra rules apply if I am 40 or older?

The federal Age Discrimination in Employment Act protects people who are at least 40.⁠^[9] Under the federal Older Workers Benefit Protection Act, a waiver of those age claims is not knowing and voluntary unless, at a minimum, it is written in understandable language, refers specifically to rights under the age law, does not waive rights arising after signing, gives consideration beyond what the person is already entitled to, advises the person in writing to consult an attorney, allows at least 21 days to consider it (at least 45 days in a group exit or termination program) and allows at least 7 days after signing to revoke.⁠^[5]

In a group program, federal law also requires the employer to tell the individual in writing which class, unit or group is covered, the job titles and ages of everyone eligible or selected, and the ages of those in the same job classification or unit who are not.⁠^[10] If the validity of an age waiver is disputed, the party relying on it has the burden of proving it was knowing and voluntary.⁠^[10]

The U.S. Supreme Court held in Oubre v. Entergy Operations, Inc. that a release that did not meet these federal requirements could not bar the employee's age claim.⁠^[11] The EEOC says an employee is not required to return severance before bringing a federal age claim, but that for Title VII, ADA and Equal Pay Act claims the law is less clear and courts have gone both ways.⁠^[12]

These periods are conditions for waiving federal age claims, not a rule for every release.⁠^[5] The guide on how long you have to consider an agreement sets out each review and revocation period and who it covers, and the guide to layoffs and reorganizations covers group programs.

What does New York State law add for discrimination claims?

New York State General Obligations Law § 5-336 limits the terms of any settlement, agreement or other resolution of a claim whose factual foundation involves discrimination, harassment or retaliation.⁠^[13]

• Confidentiality only at the complainant's preference. Under § 5-336, an employer may not include a term that would prevent disclosure of the underlying facts and circumstances unless confidentiality is the complainant's preference.⁠^[13]
• Time to consider and revoke. Under § 5-336, the term has to be given in writing in plain English and, if applicable, the complainant's primary language; the complainant has up to twenty-one days to consider it and at least seven days after signing to revoke.⁠^[14][15] A second State statute, CPLR § 5003-b, which covers the resolution of a claim or cause of action involving discrimination and refers to "the plaintiff", says "twenty-one days" without the words "up to".⁠^[16] That is a difference in statutory wording; how a court would read the two together is a question for a lawyer.
• Three clauses that undo the release. Under § 5-336(3), which applies to agreements entered on or after November 17, 2023,⁠^[17] a release of such a claim is unenforceable if the agreement requires the complainant to pay liquidated damages for violating a nondisclosure or nondisparagement clause, to forfeit all or part of the payment for such a violation, or to state that they were not in fact subject to discrimination, harassment or retaliation.⁠^[6]
• Future claims. Under § 5-336(2), a contract term entered into on or after January 1, 2020, that prevents disclosure of factual information about any future discrimination claim is void unless it tells the person it does not prohibit speaking with law enforcement, the EEOC, the Division of Human Rights, the Attorney General, a local commission on human rights, or an attorney.⁠^[18]

By its words, the State statute restricts terms about the underlying facts and circumstances of the claim; it does not mention confidentiality of the settlement amount.⁠^[13] The guide to NDAs in New York harassment and discrimination settlements covers these rules in full.

How does severance affect unemployment benefits and taxes?

Under New York State Labor Law § 591(6), no unemployment benefits are payable for a week in which the claimant receives dismissal pay that exceeds the claimant's maximum weekly benefit rate plus partial benefit credit.⁠^[19] The rule does not apply to weeks in which the first severance payment is made more than thirty days after the last day of employment.⁠^[19] See the guide to unemployment benefits after being fired or quitting.

For federal tax purposes, the IRS treats the lost-wage part of an employment settlement, including severance pay, as taxable wages subject to withholding.⁠^[20] The guide on whether employment settlements are taxable covers the other parts of a payment.

What do people commonly get wrong?

• "New York requires severance." The State Department of Labor says the Labor Law does not, absent a policy or agreement.⁠^[1]
• "Every release comes with 21 days." The federal 21-day, 45-day and 7-day periods are conditions for waiving federal age claims; the period of up to twenty-one days in New York State General Obligations Law § 5-336 attaches to a confidentiality term in a settlement of a discrimination, harassment or retaliation claim.⁠^[5][14]
• "Once I sign, I cannot talk to the EEOC." The EEOC says no agreement can limit the right to file a charge with it or to testify, assist or participate in its proceedings.⁠^[4]
• "The release covers whatever happens later." The EEOC says a valid agreement cannot require the employee to waive future rights.⁠^[2]

Practical points before signing or sending an agreement

• Read the whole document, including any exhibits and any agreement it refers to, such as an earlier arbitration or non-compete agreement.
• List what you are owed whether or not you sign (final wages, any promised vacation payout, vested benefits) and compare it with what the agreement adds.
• Note the date the offer was given and any date by which the employer wants an answer.
• Write down the events you believe may give rise to a claim and when they happened, because filing periods keep their own schedule. The guide to New York employment claim deadlines lists them.
• Keep a copy of everything you sign.