Severance Agreements in Arizona: The Basics

When employment ends, some workers are offered a severance agreement: a document in which the employer offers pay or benefits in exchange for the employee giving up certain rights, most notably the right to bring legal claims. These agreements are common in layoffs and negotiated departures, and they deserve a careful read.

There is no general law in Arizona requiring employers to offer severance. Whether severance is on the table usually comes down to company policy, an employment contract, or the circumstances of the separation. Because severance is typically voluntary on the employer's part, the terms are negotiable in principle — the first offer is not necessarily the last word.

What severance agreements almost always include is a release of claims. In plain language, the worker agrees not to sue the employer over things that happened during employment. This is the heart of the document and the part that carries the most weight. Agreements may also include confidentiality clauses, non-disparagement promises, and sometimes non-compete or non-solicitation provisions, though Arizona courts scrutinize restrictive covenants carefully.

Federal law adds specific requirements in certain situations. Workers over forty, for example, get special protections under the Older Workers Benefit Protection Act when they are asked to waive age discrimination claims: the agreement must be written plainly, must specifically mention ADEA rights, and must give the worker at least twenty-one days to consider it (forty-five in group layoffs) plus seven days to revoke after signing. These timelines are not suggestions; they are requirements for the waiver to be valid.

Money is not the only thing severance can cover. Continued health coverage, extended deadlines for exercising stock options, outplacement services, and a neutral reference can all be part of the package. The tax treatment of severance pay also matters, since lump sums can push someone into a higher bracket for the year.

Related reading: Confidentiality Agreements in the Workplace: The Basics

Find a qualified attorney at Justice Lookup.

This article is general information, not legal advice. It does not create an attorney-client relationship.