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What Is a Severance Agreement Under New Jersey Law?

A severance agreement is a contract between an employer and an employee that governs how the employee will be compensated at the time of dismissal, layoff, or termination. In exchange for a payment, typically a lump sum or continuation of salary, the employee is usually asked to release all legal claims they may have against the company, whether known or unknown.

There is no general legal requirement for employers to pay severance unless a contract, policy, or statute requires it. New Jersey's WARN Act is a significant exception. Under amendments that took effect April 10, 2023, generally, employers with at least 100 employees must provide one week of severance per full year of service to employees terminated in a covered mass layoff of 50 or more workers.

What makes severance agreements significant is the release. By signing, an employee typically gives up any legal claims they may have against the company, including claims for wrongful termination, discrimination, retaliation, or wage violations. Once signed, those rights are gone.

New Jersey WARN Act (as amended April 10, 2023)

Requires employers with at least 100 employees to provide one week of severance pay per full year of service to employees terminated in a covered mass layoff of 50 or more workers. Applies regardless of whether proper notice was given.

New Jersey Contract Law

Governs the enforceability of severance agreements, including the validity of the release, whether the agreement was entered into knowingly and voluntarily, and whether the terms are adequate consideration for the rights being waived.

Before You Sign — What You Need to Know

When you receive a severance agreement, you are often being asked to permanently give up legal rights in exchange for a payment. Here is what to consider before you sign.

Once you sign, your options narrow significantly. A case evaluation before you sign costs nothing and could change your position entirely.

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Understand what you are releasing

A severance agreement typically asks you to release all claims against your employer, known and unknown. If you may have a claim for discrimination, retaliation, wrongful termination, or wage violations, signing the agreement may mean giving up something far more valuable than the severance offered. Have an attorney review the agreement before you sign.

Check whether you are owed severance under the WARN Act

If you were terminated as part of a mass layoff of 50 or more employees and your employer has at least 100 employees, you may already be entitled to one week of severance per year of service under New Jersey's WARN Act, before any negotiation. An attorney can evaluate whether the statutory requirement applies to your situation.

Do not assume the offer is final

Severance terms are often negotiable, particularly where potential legal claims exist. The amount offered, the scope of the release, confidentiality provisions, and non-compete language included in the agreement can all be subject to negotiation. An employer's first offer is rarely its best.

Signs You May Need an Attorney Before Signing

Scenario 01

You've been handed a severance agreement with a short deadline and aren't sure whether the offer is fair

Scenario 02

Your employer terminated you shortly after a discrimination complaint, medical leave, or reporting the violation of a law or regulation

Scenario 03

The severance agreement includes a non-compete or non-solicitation clause you weren't expecting

Scenario 04

You are part of a larger layoff and aren't sure whether the WARN Act applies to your situation

Scenario 05

You aren't sure whether you're receiving all the benefits, vacation time, and compensation you're owed

Scenario 06

The release language is broad and you're uncertain what claims you might be giving up

If any of these sound familiar, a consultation is the fastest way to understand where you stand, ideally before the deadline to sign.
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What to Consider When Evaluating a Severance Agreement

Whether a severance agreement is fair depends on several factors, but you don't need to have this all figured out before you call:

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Whether you are already entitled to severance by law

If a WARN Act-covered mass layoff applies to your termination, you may be entitled to one week of severance per year of service regardless of what the agreement offers. The first step is determining whether the statutory floor applies.

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Whether you are owed unpaid wages or compensation

If your employer owes you unpaid wages, overtime, commissions, or other compensation at the time of your termination, that money may be owed to you independently of any severance offer. Signing a broad release without accounting for those amounts could mean giving them up.

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Whether the release covers claims you may have

A release that covers discrimination, retaliation, or wage claims warrants more scrutiny than one that does not. If you have potential legal claims, the value of what you are releasing should factor into whether the offer is adequate.

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Whether the terms are reasonable

The amount of severance, the duration of any non-compete or non-solicitation clause, confidentiality obligations, and any conditions on payment should all be evaluated against what you could reasonably expect given your tenure, role, and circumstances.

How Severance Agreement Matters Work in New Jersey

Severance situations are often time-sensitive. Here is what the process looks like.

1
Case Evaluation

An attorney reviews the agreement, your employment history, and the circumstances of your termination, and tells you whether the offer is fair, what you may be giving up, and whether there is room to negotiate.

No commitment required
2
Review

The firm reviews the specific language of the release, any restrictive covenants, payment terms, and conditions. Where potential legal claims exist, the firm evaluates what those claims may be worth compared to what the agreement offers. You receive a clear assessment of whether to sign, what to push back on, and what leverage you have.

3
Need Help Negotiating?

Clients who want active negotiation, pushing for a higher severance amount, removal of a non-compete, or a narrowed release, can discuss that with their attorney after the review is complete.

Results We've Secured in Employment Contract Cases

The firm has recovered significant results for New Jersey employees in disputes over executive contracts and employment agreements.

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$3.2M

Executive Contracts

A New Jersey executive in a dispute over the terms of an employment contract.

$482.2K

Executive Contract Buy-Out

A New Jersey executive in a contract buy-out matter.

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Related Claims to Consider

Severance situations often overlap with other employment claims. If any of the following also describe your situation, you may have more than one claim worth pursuing.

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Non-Compete and Non-Solicitation Agreements

Severance agreements frequently include non-compete or non-solicitation clauses. If your agreement contains one, an attorney should review both the release and the restrictive covenant together.

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Wrongful Termination

If the termination that preceded your severance offer was itself unlawful based on discrimination, retaliation, or a contract violation, you may have a wrongful termination claim that is more valuable than the severance being offered.

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Unpaid Wages and Overtime

If your employer owes you unpaid wages, overtime, or other compensation at the time of your termination, those claims exist independently of your severance agreement. A broad release could eliminate your ability to pursue them.

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Frequently Asked Questions

More FAQs

No. Signing a severance agreement is voluntary. You are not required to accept the offer, and declining does not by itself affect any legal claims you may have. Whether accepting or declining is the right decision depends on the specific terms, what you may be giving up, and whether you have independent legal claims worth pursuing.

No. Employees generally have time to review a severance agreement before the deadline, and you should use that time to have an attorney review it. For employees 40 or older, the Older Workers Benefit Protection Act requires a minimum of 21 days to consider the agreement and 7 days to revoke after signing.

It depends. There is no general legal requirement for employers to pay severance in New Jersey unless a contract, policy, or statute requires it. However, New Jersey's WARN Act, as amended in 2023, generally requires one week of severance per year of service for employees terminated in covered mass layoffs. Whether the WARN Act applies depends on the size of the employer and the size of the layoff.

Yes. Severance terms are often negotiable, particularly where potential legal claims exist. The amount of severance, the scope of the release, any non-compete provisions, and confidentiality obligations can all be subject to negotiation. An employer's first offer is not necessarily its final one.

Generally, signing a valid release bars you from pursuing claims covered by it. There are limited circumstances, such as where a valid revocation period is still in effect, or the release was obtained by fraud, under duress, or without adequate consideration, where a signed agreement can be challenged. An attorney can evaluate whether any such circumstances apply to your situation.

Before You Sign, Talk to an Attorney.

A severance agreement permanently affects your rights. A case evaluation can tell you whether the offer is fair, what you may be giving up, and whether there is room to negotiate, before you sign, not after.