TL;DR: Severance agreements typically exchange money or benefits for a broad release of claims and added obligations (confidentiality, non-disparagement, and sometimes noncompetes). Before signing, confirm what you are getting, what rights you are waiving, and whether the terms could affect unemployment, taxes, and your next job. For help reviewing or negotiating, contact us.
Why waiting to sign is often the safest first step
A severance agreement is a contract offered at or near the end of employment (or after a major change). In exchange for severance pay and/or benefits, employers commonly request a release of claims plus additional commitments.
Before you sign, focus on (1) what you will receive, (2) what rights you are waiving, and (3) what restrictions you are accepting. Once signed, these agreements can be difficult to unwind, especially if there are repayment provisions or broad waivers.
What a Michigan severance agreement usually covers
Terms vary, but severance agreements commonly address:
- Severance pay structure (lump sum vs. salary continuation)
- How bonuses, commissions, or incentives are treated (and which plan documents control)
- Benefits continuation, including COBRA logistics and who pays premiums (U.S. Department of Labor – COBRA overview)
- Accrued vacation/PTO and expense reimbursements
- A release of legal claims (often broad)
- Confidentiality and non-disparagement
- Noncompetition, non-solicitation, and related restrictive covenants
- Return of company property and data
- Cooperation clauses
- Dispute-resolution terms (venue, arbitration, attorney-fee provisions)
The release: what rights you may be giving up
The release (waiver) is often the most consequential section. It is frequently drafted broadly and may attempt to cover known and unknown claims connected to your employment and separation.
Examples of issues that may be affected include:
- Wage and hour disputes
- Discrimination, harassment, or retaliation claims
- Contract, commission, or bonus disputes
If you are age 40 or older, additional federal rules can apply to any waiver of Age Discrimination in Employment Act (ADEA) rights. See 29 U.S.C. § 626(f).
Noncompetes and restrictive covenants: watch the fine print
In Michigan, a severance agreement may introduce new restrictive covenants (or expand old ones), including noncompete, non-solicitation, and confidentiality terms.
Michigan law allows certain noncompete agreements, but enforceability is fact-specific and typically turns on whether the restriction is reasonable in duration, geography, and the type of work restricted. See MCL 445.774a.
These restrictions can affect:
- Whether you can accept a job with a competitor
- Whether you can contact former customers or coworkers
- How you describe your work and results in interviews
- What company materials and data you must not retain or use
Confidentiality and non-disparagement: what you can still say
Confidentiality clauses may cover the severance amount, internal information, and sometimes the existence of the agreement itself. Non-disparagement clauses may restrict critical statements about the company and its employees.
Practical issues to evaluate:
- Whether the language is broader than expected (for example, restricting even truthful statements)
- Whether there are workable exceptions (for a spouse, attorney, or tax professional, or as required by law)
- Whether there is a liquidated damages or repayment (“clawback”) clause for alleged violations
Tip: ask for a short, written list of negotiated changes
If you negotiate, request that the employer provide a clean copy and a redline (or a simple written summary) showing exactly what changed: payout timing, benefit contributions, reference language, and any narrowed restrictions. This helps prevent misunderstandings and avoids relying on verbal assurances.
Money terms that are often negotiable
Even when an employer calls severance “standard,” some terms are sometimes negotiable depending on leverage and circumstances:
- Severance amount or duration
- Timing (lump sum vs. salary continuation)
- Payment of earned bonuses/commissions and how targets are calculated
- Health insurance premium contributions for a defined period
- Outplacement services
- Neutral reference or agreed reference language
- Mutual non-disparagement
- Narrowing (or removing) restrictive covenants
Unemployment and severance in Michigan
In Michigan, certain payments around separation can affect unemployment benefit timing or weekly eligibility depending on how the payment is characterized and allocated. See MCL 421.48.
Before signing, consider asking:
- Is the severance described as wages, dismissal/separation pay, or something else?
- Is it paid as salary continuation or a lump sum?
- Does the employer plan to contest unemployment?
Taxes and withholding: know what you will actually receive
Severance is generally taxable, and employers commonly withhold taxes from severance payments. See IRS Publication 525.
- Confirm whether the stated severance number is gross or net
- Ask how and when withholdings will be taken
- If equity, commissions, or bonuses are involved, confirm how those items are paid and taxed under the controlling plan documents
Severance review checklist (Michigan)
- Get the full packet: agreement, exhibits, referenced policies, and plan documents.
- Confirm the payout: amount, schedule, and conditions (including resignation date requirements).
- Read the release carefully: who is released, what claims, and whether unknown claims are included.
- Check restrictive covenants: noncompete, non-solicit, confidentiality scope, and duration.
- Identify clawbacks: repayment triggers, liquidated damages, and fee-shifting clauses.
- Clarify references: neutral reference language and who may speak for the company.
- Consider unemployment impact: how payments are characterized under Michigan law.
- Understand taxes: gross vs. net, withholding, and timing.
- Get questions answered in writing: do not rely on verbal promises.
FAQ
Do I have to sign a severance agreement to get severance pay?
Often, yes. Many employers condition severance on signing a release and other terms. Whether you already have a right to severance depends on any applicable contract, plan, or policy.
Can my employer add a noncompete in a severance agreement if I never had one?
They can propose it. Whether it is enforceable depends on the wording and facts, and Michigan generally evaluates reasonableness under MCL 445.774a.
Will severance affect Michigan unemployment benefits?
It can, depending on how the payment is structured and allocated. The rules can be technical; MCL 421.48 is a starting point, but outcomes can vary by fact pattern.
If I am 40 or older, are there special rules for the release?
There can be. Federal requirements may apply to waivers of ADEA rights; see 29 U.S.C. § 626(f).
What should I do if the employer says the offer expires today?
You can ask for an extension and explain you need time to review. If you are unsure, consider having an attorney do a targeted review quickly so you can make an informed decision.
Talk to a Michigan employment lawyer before you sign
If you received a severance agreement for work in Royal Oak or anywhere in Michigan and want a review or negotiation help, contact us.
Michigan-specific disclaimer
This article is for general informational purposes only and is not legal advice. Michigan and federal employment laws can change, and how they apply depends on the specific facts and documents in your situation. For advice about a particular severance agreement in Michigan, consult a qualified attorney.