Question 1

Is McLaren Macomb still good law after the 2025 NLRB changes?

Accepted Answer

Yes, as of April 2026. On April 7, 2026, the NLRB issued Prime Communications, LP (374 NLRB No. 88, Case 16-CA-309916), which applied McLaren Macomb (372 NLRB No. 58, February 21, 2023) to invalidate an employer's severance-agreement confidentiality and non-disparagement provisions. Chairman Murphy and Member Mayer — both Trump appointees — stated they remained open to reconsidering McLaren in a future case, but joined the decision because the Board lacks a three-member majority to overturn existing precedent. The Trump administration's nomination of James Macy to the vacant seat could provide that majority if confirmed. Until then, the practical rule is: (1) confidentiality clauses in severance agreements must be narrowly tailored to trade secrets, proprietary information, or the monetary terms of the agreement itself — not the fact of the agreement or the circumstances of the separation; (2) non-disparagement clauses must be limited to defamatory statements and be time-bounded; (3) both clauses must explicitly carve out Section 7 rights, NLRB charges, and other statutorily protected communications. Supervisors are generally not covered by NLRA Section 7 and so McLaren applies to them only in narrow retaliation contexts. The tool inserts post-McLaren narrow language by default for all non-supervisory employees.

Question 2

What are the 7 OWBPA requirements for a valid ADEA waiver in a severance agreement?

Accepted Answer

The Older Workers Benefit Protection Act (29 U.S.C. §626(f)) requires seven elements for a knowing-and-voluntary waiver of age discrimination claims by an employee 40 or older, codified at 29 C.F.R. §1625.22: (1) the waiver is written in a manner calculated to be understood by the employee or by the average individual eligible to participate — plain-language, no legalese beyond what is necessary; (2) the waiver specifically refers to rights or claims arising under the ADEA by name, not by general reference to 'age discrimination'; (3) the waiver does not cover rights or claims that may arise after the date the waiver is executed — future claims cannot be released; (4) the waiver is in exchange for consideration in addition to anything of value the employee is already entitled to — severance cannot be conditioned on waiving ADEA claims if the severance is already owed under a policy or contract; (5) the employee is advised in writing to consult with an attorney before executing the agreement — not a recommendation to read it, but explicit attorney-consultation language; (6) the employee is given at least 21 days to consider the agreement (45 days if the agreement is in connection with an exit incentive program or other termination program offered to a group or class of employees); (7) the agreement provides that for at least 7 days after execution, the employee may revoke the agreement, and the agreement does not become effective or enforceable until the revocation period has expired. If any one of the seven is missing or defective, the ADEA release is invalid and the employee may still bring an age-discrimination claim notwithstanding the signed release. The 21-day period starts from the employer's final offer; material changes restart it unless the parties agree otherwise. Tender-back is not required to challenge an invalid OWBPA release under Oubre v. Entergy Operations, 522 U.S. 422 (1998). The tool's 'individual age 40+' and 'group/RIF' variants insert all seven elements by default.

Question 3

What does the OWBPA group-layoff Exhibit A have to include?

Accepted Answer

When a severance agreement with an ADEA waiver is offered to two or more employees as part of an exit incentive or other termination program, 29 C.F.R. §1625.22(f) requires disclosure of: (a) the class, unit, or group of employees covered by the program (the 'decisional unit'); (b) any eligibility factors for the program; (c) any time limits applicable to the program; (d) the job titles and ages of all individuals eligible or selected for the program; and (e) the job titles and ages of all individuals in the same job classification or organizational unit who are not eligible or selected. This disclosure is commonly titled 'Exhibit A' or the 'ADEA Attachment' or the 'OWBPA Chart.' The ages must be actual ages, not age ranges. Names are not required and should not be included for privacy reasons — job title plus age is the standard. The decisional unit is fact-specific: if the layoff affects all employees of the company, the decisional unit is the whole company; if it affects a division, the decisional unit is that division; if it affects a specific job classification within a division, that is the decisional unit. Getting the decisional unit wrong is the most common way Exhibit A disclosures fail to comply — a too-narrow unit excludes context the employee needs to evaluate age-discrimination claims, and a too-broad unit is non-responsive. Multiple rounds of layoffs within the same plan are aggregated. The tool's group/RIF variant includes a decisional-unit builder and an Exhibit A generator that produces a properly-formatted job-title-and-age chart.

Question 4

What is the Speak Out Act and how does it affect severance-agreement NDAs?

Accepted Answer

The Speak Out Act (Pub. L. 117-224, signed December 7, 2022, 42 U.S.C. §19401 et seq.) makes judicially unenforceable any pre-dispute nondisclosure or non-disparagement clause that covers a sexual-assault dispute or a sexual-harassment dispute. A 'pre-dispute' clause is one agreed to before the conduct giving rise to the dispute occurs. The Act applies to claims filed on or after December 7, 2022, regardless of when the NDA was signed. It does not void post-dispute nondisclosure — an NDA in a severance or settlement agreement signed after a sexual-misconduct dispute has arisen is still enforceable. It also does not affect NDAs protecting trade secrets or proprietary information unrelated to sexual misconduct. Practical application to severance agreements: a severance agreement is typically post-dispute (the employment is ending, often because of a known problem), so the Speak Out Act does not automatically invalidate a nondisclosure clause in the agreement. But if the departing employee has not yet raised a sexual-harassment or sexual-assault allegation at the time of severance, and later does, any nondisclosure or non-disparagement provision covering that allegation is unenforceable. The safest practice is to include an express carve-out: nothing in the nondisclosure or non-disparagement provisions prevents the employee from disclosing or discussing conduct the employee reasonably believes to constitute sexual assault or sexual harassment. Many state laws (California Silenced No More, Washington RCW 49.44.211, New York GOL §5-336, Illinois Workplace Transparency Act as amended by HB 3638) go broader than the Speak Out Act and require carve-outs for discrimination, retaliation, and other unlawful conduct generally. The tool inserts Speak Out Act carve-outs by default and layers state-specific carve-outs where applicable.

Question 5

Can a severance agreement prevent the employee from reporting to the SEC, EEOC, or NLRB?

Accepted Answer

No. SEC Rule 21F-17(a) (17 C.F.R. §240.21F-17(a)) prohibits any person from taking any action to impede an individual from communicating directly with SEC staff about a possible securities-law violation, including enforcing or threatening to enforce a confidentiality agreement. The SEC has aggressively enforced this rule in the severance-agreement context: a $35 million settlement with Activision Blizzard (February 3, 2023) for notice-requirement clauses; a $375,000 settlement with CBRE (September 19, 2023) for a representation that the employee had not filed charges with any agency; and a seven-company enforcement sweep announced September 9, 2024 that targeted waivers of monetary whistleblower awards. The parallel EEOC rule is that a severance-agreement provision cannot prohibit an employee from filing a charge with the EEOC or from participating in an EEOC investigation — the employer can recover amounts paid in consideration if the employee breaches a release by litigating on their own, but cannot prevent the agency participation itself (see EEOC Enforcement Guidance on Non-Waivable Employee Rights Under EEOC-Enforced Statutes, 4/10/1997; EEOC v. Astra USA, 94 F.3d 738, 1st Cir. 1996). The NLRB position in General Counsel Memorandum GC 23-08 (McLaren Macomb-informed guidance) and the subsequent Prime Communications decision treat any clause preventing NLRB charges as a separate Section 8(a)(1) violation on top of any McLaren confidentiality/non-disparagement defect. The standard compliant language carves out: (a) filing charges or complaints with any federal, state, or local agency; (b) participating in any agency investigation or proceeding; (c) providing truthful testimony in any legal proceeding; (d) communicating with the SEC, EEOC, NLRB, OSHA, DOL, CFPB, or any other agency; (e) receiving or retaining any whistleblower award to which the employee becomes entitled. The tool inserts this five-element carve-out by default.

Question 6

How does Section 409A affect severance pay structuring?

Accepted Answer

Section 409A of the Internal Revenue Code (26 U.S.C. §409A) treats severance pay as deferred compensation unless an exemption applies. A §409A violation is catastrophic for the employee: the entire severance becomes immediately taxable in the year of violation, plus a 20% additional tax, plus interest computed at the IRS underpayment rate plus 1% from the year of deferral. Two exemptions commonly apply to severance. First, the short-term deferral exemption (Treas. Reg. §1.409A-1(b)(4)): severance paid in its entirety by March 15 of the year following the year of termination is exempt. A lump-sum payable shortly after termination almost always qualifies. Second, the involuntary separation pay exemption (Treas. Reg. §1.409A-1(b)(9)(iii)): severance paid on account of an involuntary separation from service is exempt up to 2 times the lesser of (a) the employee's annual compensation in the prior year, or (b) the IRC §401(a)(17) limit, which for 2026 is $355,000 — yielding a separation pay cap of $710,000. Payment must be completed by the end of the second calendar year after separation. These two exemptions can be stacked: an installment stream is treated as short-term deferral for amounts paid by March 15 of the following year, and as separation pay for the balance up to the cap. A resignation for 'good reason' can qualify as involuntary if the good-reason definition tracks the safe harbor in Treas. Reg. §1.409A-1(n)(2)(ii) (material reduction in duties, material reduction in compensation, material relocation, etc.). If neither exemption applies, the severance must comply with §409A: fixed payment schedule, no impermissible acceleration, specified-employee six-month delay for public-company key employees per §409A(a)(2)(B)(i), and release-of-claims timing structured so the employee does not control the tax year of payment (Notice 2010-6 provides the correction framework — typically the agreement specifies a fixed payment date that falls after the release consideration and revocation periods, or straddles two tax years with a fallback date in the later year). The tool's executive variant includes §409A structuring by default and flags the 2026 separation pay cap of $710,000.

Question 7

Is severance pay taxable? How is it reported?

Accepted Answer

Severance paid as wages is taxable as ordinary income and reported on Form W-2, with federal income tax withholding at the supplemental-wage rate (22% for payments up to $1 million in a calendar year, 37% for amounts above $1 million per §1(j)) and with FICA (Social Security and Medicare) withholding applicable. The Supreme Court held in United States v. Quality Stores, 572 U.S. 141 (2014) that severance payments are wages subject to FICA. Amounts specifically allocated to non-wage categories — for example, settlement of an emotional-distress claim with physical-manifestation component under §104(a)(2), or attorney's fees paid directly to the employee's counsel — may be reported on Form 1099-MISC instead and may not be subject to FICA. Allocation matters for the employee's after-tax proceeds and must be reasonable and defensible. Allocating the entire severance to an emotional-distress settlement when the facts support an ordinary severance pattern is aggressive and the IRS can recharacterize. COBRA premium subsidies included in a severance package are not wages and are not reported on W-2 but may be taxable under §4980B depending on structure. Outplacement services are generally not taxable under §132(b) if they serve the employer's interest. Legal-fee payments to the employee's attorney where the employee is the client are included in the employee's gross income under Commissioner v. Banks, 543 U.S. 426 (2005), but deductible 'above the line' for certain discrimination and whistleblower awards under §62(a)(20)-(21). The tool includes a tax-allocation section that the employer and employee can populate and flags common allocation errors.

Question 8

What states mandate that severance pay be offered?

Accepted Answer

New Jersey is the only state that mandates severance as a free-standing rule, not just a penalty for failure to provide WARN notice. The NJ WARN Act (the Millville Dallas Airmotive Plant Job Loss Notification Act, N.J.S.A. 34:21-1 et seq., as amended effective April 10, 2023) requires employers with 100+ employees nationwide that have operated in New Jersey for more than three years to pay severance of one week's pay per full year of service to employees terminated as part of a mass layoff. A mass layoff under the amended statute is 50 or more terminations of NJ employees in 30 days, across all NJ locations combined (no 33%-of-workforce threshold, no single-location requirement). If the employer fails to give the required 90-day notice, an additional 4 weeks of severance is owed per employee. The severance is non-waivable except with approval of the NJ Commissioner of Labor or a court, and the definition of 'employer' was expanded to reach corporate parents and individual decision-makers who ordered the layoff. Other states have partial severance rules: Puerto Rico's Law 80 of 1976 requires severance on unjustified dismissal; Montana's Wrongful Discharge from Employment Act creates a wrongful-discharge remedy that can include severance-like damages but is not a severance mandate; Maine's severance-pay statute (26 M.R.S. §625-B) requires one week per year of service for plant closings affecting 100+ employees but is narrower than NJ. Federal WARN Act backpay is computable as severance-like, and state WARN statutes in Illinois, New York, California, Tennessee, and several others create back-pay liability for missed notice. The tool's group/RIF variant includes an NJ WARN severance calculator and flags state WARN exposure where applicable.

Question 9

Can I include a non-compete clause in a severance agreement?

Accepted Answer

Sometimes, and only within state law. The FTC Noncompete Rule that would have banned most non-competes nationwide is dead: after the Northern District of Texas vacated the rule in Ryan LLC v. FTC (2024 WL 3879954, August 20, 2024) with nationwide effect, the FTC under Chair Andrew Ferguson voted 3-1 on September 5, 2025 to dismiss its appeals in the Fifth and Eleventh Circuits and accede to the vacatur. There is no federal non-compete rule. Enforceability is entirely state-by-state. California (Bus. & Prof. Code §16600 plus the 2024 amendment at §16600.5 that voids out-of-state non-competes against California workers even if lawfully signed elsewhere), Minnesota (Minn. Stat. §181.988, effective July 1, 2023), North Dakota (N.D. Cent. Code §9-08-06), and Oklahoma (15 Okla. Stat. §219A) ban post-employment non-competes entirely for employees. Colorado (C.R.S. §8-2-113) limits enforcement to workers making above $127,091 in 2025 (the threshold adjusts annually), with a lower non-solicitation threshold. Washington (RCW 49.62) requires minimum earnings of $120,559.99 (2024) and 2-week advance notice. Illinois (820 ILCS 90/) has the Freedom to Work Act floor. Oregon (ORS 653.295) requires written notice and compensation thresholds. Massachusetts (M.G.L. c. 149 §24L, the Noncompetition Agreement Act) requires garden-leave pay of 50% of base salary or mutually-agreed consideration. Severance itself can serve as consideration for a non-compete in states that enforce them, but only if the non-compete complies with all other state-law requirements (reasonableness in time, geography, and scope; consideration beyond continued at-will employment in many states; notice where required). In severance contexts, a common workable alternative is a narrower non-solicitation of customers or employees — many states enforce these more readily. The tool flags non-compete enforceability for the selected state and offers a non-solicit alternative when the state bans or narrowly limits non-competes.

Question 10

What is California Civil Code §1542 and why does every California severance agreement mention it?

Accepted Answer

California Civil Code §1542 provides: 'A general release does not extend to claims that the creditor or releasing party does not know or suspect to exist in his or her favor at the time of executing the release and that, if known by him or her, would have materially affected his or her settlement with the debtor or released party.' By default in California, a general release does not cover claims the releasing party did not know about. To make the release extend to unknown claims, the agreement must include an express waiver of §1542 protections, signed by the releasing party, with language substantially of the form: 'I expressly waive the provisions of California Civil Code §1542, having been advised of its content.' The standard practice is to quote §1542 in full in the agreement and then have the employee acknowledge the quoted text and expressly waive its protections. California courts strictly enforce §1542 — a release without the §1542 waiver will be construed to cover only known claims, which dramatically reduces its value to the employer. §1542 applies to California residents and to releases executed in California or purporting to release California claims. The tool's output includes a full-text §1542 quotation and waiver whenever California is selected as the governing state, the employee's residence, or the place of execution.

Severance Agreement Generator

Frequently asked questions

Is McLaren Macomb still good law in April 2026?

What are the 7 OWBPA requirements for a valid ADEA waiver?

What does the OWBPA Exhibit A need to contain for a group layoff?

Does the Speak Out Act void nondisclosure in a severance agreement?

Can a severance agreement prohibit an employee from reporting to the SEC, EEOC, or NLRB?

What is Section 409A's separation-pay cap for 2026?

Does New Jersey require severance pay?

Is the FTC non-compete ban still pending?

What is Illinois HB 3638 and why does it matter for severance?

Why does California require a §1542 waiver?