What Maryland Workers Need to Know About Severance Agreements
Losing a job is one of the most stressful experiences a person can face. When an employer hands you a severance agreement on the way out the door, the pressure to sign quickly can feel overwhelming. But before you put pen to paper, it is critical to understand exactly what you are agreeing to — and what your rights are under Maryland law.
This guide breaks down how severance agreements work in Maryland, what common provisions to watch for, and the key legal protections available to you as an employee. This article is intended for general educational purposes only and does not constitute legal advice. Every situation is different, and you should consult a qualified Maryland employment attorney for guidance specific to your circumstances.
Is Severance Pay Required in Maryland?
One of the most important things Maryland employees should understand is that severance pay is not automatically guaranteed. Maryland law does not require employers to offer severance pay when employment ends, unless it was promised in advance through an employment contract, company policy, or other agreement.
According to the Maryland Department of Labor, Maryland law does not guarantee severance pay when employment terminates, unless promised in advance in an employment contract, agreement, or policy. There are, however, a few specific situations that can create an obligation for an employer to provide severance pay:
- A severance agreement is part of a written employment contract or established company policy
- Severance is required under a collective bargaining or union agreement
- The employer has an established practice of paying severance that creates a reasonable expectation
If none of these circumstances apply, an employer is not legally obligated to offer severance. Many still choose to do so, however, to reduce litigation risk or maintain goodwill with departing employees.
Why Employers Offer Severance Agreements
It is important to understand the motivation behind a severance offer. Employers commonly use severance agreements to protect themselves against potential liability, preserve their public reputation, and prevent the disclosure of confidential information. In some cases, they also use severance agreements to impose competitive restraints on departing employees.
From the employee's perspective, a severance package can provide financial security and compensation for past years of service. However, it almost always comes with strings attached. Most severance packages give the recipient a monetary amount in exchange for an agreement that they will not take any legal action against the former employer — often referred to as a "release of claims."
Signing a severance agreement is a significant legal decision. Once you sign, you will almost certainly waive your right to take legal action against your employer, so it is essential to make sure the agreement provides just compensation before signing.
What a Maryland Severance Package Typically Includes
Severance packages vary depending on the employer, the industry, and the employee's individual circumstances. A reasonable and comprehensive severance package may include some or all of the following:
- Severance pay — often calculated based on salary and length of service
- Continuation of benefits — such as health, life, or disability insurance, sometimes with employer-paid COBRA coverage for a set period
- Outplacement services — career support to help the employee find new work
- A neutral or positive reference letter — to support future job searches
- A general release of legal claims — a document that typically waives the employee's right to sue in exchange for the severance payment
Many employers also include non-compete or non-disparagement clauses, which may restrict the employee's actions following termination. These provisions deserve careful scrutiny before you agree to them.
Key Legal Protections for Maryland Employees
Maryland's Anti-Discrimination Laws and Claim Releases
When a severance agreement asks you to release legal claims, it is important to understand which rights you are giving up. In Maryland, claims that may be subject to a release include those under Maryland's anti-discrimination laws (Md. Code Ann., State Gov't § 20-601, et seq.), the Maryland Healthy Retail Employee Act, Maryland's Equal Pay for Equal Work Act, Maryland's leave laws, and Maryland's minimum wage and overtime laws.
Importantly, however, your employer cannot force you to waive certain rights no matter what the agreement says. For example, you cannot be required to waive your right to file a charge with the Equal Employment Opportunity Commission (EEOC).
Protections for Workers Over 40: The OWBPA
If you are 40 years of age or older, federal law provides an important additional layer of protection. The Older Workers Benefit Protection Act (OWBPA), which is part of the Age Discrimination in Employment Act (ADEA), sets strict requirements that employers must follow in order to obtain a valid release of age discrimination claims from workers in this age group.
Under the OWBPA, severance agreements for workers 40 and older must meet specific requirements to ensure that any waiver of rights is truly "knowing and voluntary." These requirements include:
- The agreement must be in writing and drafted in clear, understandable language
- It must explicitly state that the employee is waiving their rights under the ADEA
- The employer must advise the employee in writing to consult with an attorney before signing
- The employee must be given at least 21 days to consider the agreement
- The employee must be allowed a 7-day revocation period after signing
If an employer fails to comply with OWBPA requirements in any respect, the age discrimination waiver in the severance agreement is unenforceable — even after the employee has signed and received payment. Additionally, the OWBPA disclaims the common-law "tender-back" rule, meaning the employee can keep the severance money and still pursue age discrimination claims if the waiver was improperly obtained.
When two or more employees over 40 are terminated at or around the same time — such as during a reduction in force — the OWBPA imposes additional disclosure requirements on the employer, including information about which employees were selected and the criteria used.
Non-Disparagement Clause Restrictions
Maryland law specifically restricts what employers can include in non-disparagement clauses. Non-disparagement clauses included as part of severance agreements are not allowed to restrict employees from disclosing or discussing information regarding work-related sexual harassment, sexual assault, or retaliation for reporting such conduct. This is a meaningful protection that employees should be aware of when reviewing these provisions.
At the federal level, the NLRB's 2023 McLaren Macomb decision also restricts the use of broad non-disparagement and confidentiality provisions in severance agreements for most private-sector employees.
Non-Compete Clauses in Maryland Severance Agreements
Severance agreements may include non-compete clauses that restrict your ability to work for competitors after leaving. Maryland law places meaningful limits on when these clauses are enforceable.
Under Maryland's Non-Compete and Conflict of Interest Clauses Act, non-compete agreements cannot apply to employees earning less than the statutory wage threshold (tied to 150% of the state minimum wage). As of the current minimum wage of $15.00 per hour, this means employees earning $22.50 per hour or less — or approximately $43,200 per year or less — generally cannot be bound by non-compete agreements.
Beyond the wage threshold, a valid non-compete in Maryland must also:
- Not create an undue hardship for the employee
- Not be imposed on employees lacking unique or specialized skills
- Be necessary to protect a legitimate business interest
Notably, as of April 2024, Maryland also enacted legislation specifically prohibiting non-compete agreements for certain veterinary and healthcare professionals. If your severance agreement includes a non-compete or non-solicitation covenant, it is strongly advisable to consult with a Maryland employment attorney about whether it can be modified or removed.
Severance Pay and Unemployment Benefits in Maryland
A common question among departing employees is whether accepting severance pay will affect their eligibility for unemployment benefits. The answer depends on how the severance is structured.
Lump sum severance payments typically do not affect unemployment benefits. However, if the employer allocates the severance pay over a period of time — treating it like ongoing wages — it may delay or reduce the employee's eligibility for benefits. For this reason, it is generally in employees' best interests to receive severance as a lump sum rather than in installments.
Employees should also be aware that signing a release form that states they resigned voluntarily can affect unemployment benefit eligibility, since Maryland unemployment benefits are generally available to those who were separated without cause, such as through a layoff or downsizing.
The Federal WARN Act: Your Right to Notice
If your termination is part of a large-scale layoff or plant closing, federal law may entitle you to advance notice. Under the federal Worker Adjustment and Retraining Notification (WARN) Act, employers with 100 or more employees are required to provide 60 days' advance written notice of a qualifying mass layoff or facility closing.
To be covered under the WARN Act, the reduction in force must involve either a plant closing or a mass layoff of 50 or more employees at a single location, where that number constitutes at least 33% of the qualifying workforce. If you are placed on leave because your layoff falls under the WARN Act, you are legally entitled to your normal compensation and benefits for the entire 60-day notice period — and this is separate from any severance package.
Some employers attempt to avoid WARN Act liability by offering severance packages, often worth two months of income and benefits, in lieu of advance notice. If you receive such an offer, it is important to have the agreement reviewed by an attorney before signing.
Tips for Negotiating a Fair Severance Agreement in Maryland
Many Maryland employees do not realize that a severance agreement is often a starting point for negotiation — not a final, non-negotiable offer. Many companies present "take it or leave it" packages to departing employees, but this characterization can be misleading. Here are practical steps to consider:
- Do not rush to sign. You have the right to take your time and review the agreement. If you are over 40, federal law gives you at least 21 days. Even if you are under 40, you should not feel pressured to sign immediately.
- Review the release of claims carefully. Understand exactly which legal claims you are giving up and whether any valuable claims may be worth more than the severance offered.
- Check the termination reason. If you are being laid off for reasons unrelated to your performance, this should be clearly stated in the agreement. The agreement should indicate a layoff or reduction in force — not a for-cause termination — as the latter can affect future employment prospects and unemployment benefit eligibility.
- Scrutinize restrictive covenants. Non-compete, non-solicitation, and confidentiality clauses can significantly limit your future opportunities. Push back on provisions that are overly broad or unreasonable.
- Consider requesting a lump sum payment to avoid complications with unemployment benefits.
- Consult a Maryland employment attorney. An experienced attorney can assess whether the package is fair, identify potential red flags, and negotiate stronger terms on your behalf.
Conclusion: Protect Your Rights Before You Sign
A severance agreement can provide meaningful financial protection during a difficult transition — but it can also permanently waive valuable legal rights if signed without careful review. Maryland employees are not required to simply accept what is offered. Understanding the law, taking the time to review the agreement, and seeking qualified legal counsel are the most important steps you can take to protect your interests.
At Leeds Law Firm, our Maryland employment law attorneys are experienced in reviewing and negotiating severance agreements. Whether you have already received a severance offer or anticipate an upcoming separation, we can help you understand your rights and work toward the best possible outcome. Contact our office today for a confidential consultation.
