The Severance Agreement Trap: What Tech Employees Need to Know About Protecting Disability Benefits During Layoffs

The Severance Agreement Trap: What Tech Employees Need to Know About Protecting Disability Benefits During Layoffs

Severance agreements can permanently forfeit disability benefits worth $500,000 to $2 million unless you negotiate specific carve-outs before signing. Most tech employees focus on the severance dollar amount, skim the legal language, and sign—without realizing they're trading tens of thousands in severance for potentially millions in long-term disability coverage.

As companies like Intel, Microsoft, Amazon, and Chevron cut thousands of positions across California and Arizona in 2025 and early 2026, employees face intense pressure to sign severance agreements within 21 to 45 days. The standard release language in these agreements often includes waivers that forfeit your right to file disability claims, appeal denials, or sue your insurer—even if you develop a serious medical condition years from now.

This isn't a take-it-or-leave-it situation. For employees who received 60-day WARN notices, the severance signing deadline falls within your covered employment period—creating critical strategic opportunities to protect disability rights. Understanding what you're signing and negotiating protective language can mean the difference between financial security and a devastating loss of benefits when you need them most.

Why Your Severance Agreement Might Cost You $500,000+ in Disability Benefits

The math should terrify anyone signing a severance agreement without understanding what they're giving up.

Consider a tech employee earning $150,000 annually. Long-term disability benefits typically pay 60% of salary, subject to policy maximums of $10,000 to $15,000 per month. For this employee, LTD would provide $7,500 monthly if they became disabled and unable to work. If benefits continue to age 65—standard in most policies—that's potentially $1.8 million to $2.7 million over a 20-30 year period.

Now compare that to typical severance packages. Intel's formula in 2024-2025 was 4 weeks base pay plus 1.5 weeks per year of service. An employee with 15 years at Intel earning $180,000 would receive approximately $80,000 in severance (4 weeks plus 22.5 weeks equals 26.5 weeks of pay). Their potential LTD benefit? $9,000 per month to age 65, totaling over $3 million if they became disabled.

The trade isn't obvious when you're focused on immediate financial relief. Many tech employees have been working through disabling symptoms without filing claims—signing a severance release can permanently forfeit your right to benefits for conditions that started during employment. You're signing away millions in potential disability coverage for tens of thousands in severance—and most employees never realize it until a medical crisis hits and the insurer points to the release they signed years earlier.

The stakes get even higher if you're already receiving disability benefits. You might be collecting $8,000 monthly while your employer offers 12 weeks severance—roughly $27,000. The broad release language could forfeit your right to appeal future denials, sue if benefits are terminated, or challenge the insurer's medical reviews. That $27,000 doesn't replace years of $8,000 monthly payments if your claim gets terminated six months after you sign.

The Hidden Language: How Severance Agreements Waive Disability Rights

Standard severance agreements contain a "General Release" section—the legal language where you agree not to sue your employer. These releases are written in deliberately broad terms. The typical language states that you release the company and its "parents, subsidiaries, related or affiliated entities, agents, insurers, and plan administrators" from "any and all claims."

That broad sweep is the trap. Your company's long-term disability insurer—whether it's Unum, Hartford, Prudential, or another carrier—is considered an "insurer" or "affiliated entity" under these agreements. The plan administrator processing your disability claims falls under that language too. By signing, you're not just releasing claims against your employer. You're potentially waiving your right to file ERISA disability claims against the insurance company handling your benefits.

Two federal court cases from 2025 and 2018 illustrate exactly how this plays out and what you can do to protect yourself.

In Schuyler v. Sun Life Assurance Company, decided by the Second Circuit Court of Appeals in August 2025, Kristen Schuyler worked for Benco Dental Supply when she suffered a traumatic brain injury. She went on medical leave and filed for long-term disability benefits with Sun Life, Benco's LTD insurer. While her claim was pending, she negotiated her departure from the company.

Ms. Schuyler did something smart: she asked questions. When Benco presented her with a severance agreement containing standard broad release language, she specifically asked Benco's attorney how it would affect her disability claim. In writing, Benco's counsel gave her two explicit assurances: "Sun Life is a separate and independent third-party entity in charge of LTD" and "this agreement should have absolutely no effect on your ability to appeal your LTD."

Based on these written representations, she signed. When Sun Life later denied her appeal and she filed an ERISA lawsuit, the insurer argued she'd already waived her right to sue through the severance release. The trial court agreed and dismissed her case.

The Second Circuit reversed. The appellate court didn't just look at the words on the page—it examined whether Ms. Schuyler had "knowingly and voluntarily" waived her rights, a requirement for any valid legal waiver. Because her employer explicitly told her in writing that the release wouldn't affect her disability claim, the court ruled she couldn't have knowingly signed away those rights. Her case was sent back to district court for a full trial on the merits of her disability claim.

Contrast that with Thomas v. Prudential Insurance Company, decided by the Eastern District of Pennsylvania in 2018. Mr. Thomas signed a severance agreement releasing claims against the company and its "insurers" and "plan fiduciaries." Unlike Ms. Schuyler, there's no evidence he asked whether the release would affect his disability benefits. Worse, his severance agreement specifically carved out an exception for "vested benefits under a retirement plan governed by ERISA" but included no such carve-out for disability benefits.

When Thomas later sued Prudential for denying his LTD claim, the insurer filed a counterclaim accusing him of breaching the severance agreement by filing the lawsuit. The court denied Thomas's motion to dismiss that counterclaim. It found that because the agreement specifically excluded retirement benefits but not disability benefits, it was reasonable to infer the parties intended to waive disability claims. Since Prudential was clearly an "insurer" under the release language, the waiver appeared to apply.

The difference between winning and losing came down to one factor: asking questions and getting answers in writing. Ms. Schuyler documented her employer's assurances. Mr. Thomas apparently assumed the release didn't apply to his disability benefits. That assumption cost him.

Are You Already on Disability? The Severance Agreement Becomes Even Riskier

If you're currently receiving long-term disability benefits when your employer announces layoffs, the severance agreement presents a particularly dangerous trap. You're not just protecting hypothetical future rights—you're protecting active, ongoing monthly payments that your family depends on right now.

Employees receiving LTD benefits during the 2025 tech layoffs reported a troubling pattern: insurers became more aggressive shortly after layoff announcements. Understanding how layoffs affect active LTD claims helps you recognize when insurers are using workforce reductions as leverage to terminate benefits improperly. Microsoft and Intel employees on disability described sudden requests for updated medical documentation, "routine" independent medical examinations scheduled weeks after the layoff was announced, and termination letters citing "medical improvement" that coincidentally arrived shortly after the workforce reduction.

The timing isn't accidental. When you're laid off while on LTD, insurers see an opportunity. If you sign a broad severance release, you forfeit critical protections. You lose the right to appeal any future benefit termination. You can't sue if the insurer wrongfully cuts off your payments. You can't challenge findings from independent medical exams or fight back against surveillance reports. You can't enforce your policy terms if the insurer breaches them.

Think about what this means in practice. You're receiving $8,000 monthly in disability benefits—$96,000 annually. Your employer offers 12 weeks severance, roughly $27,000. You sign the standard release to get that money. Six months later, the insurer sends you to an independent medical exam. The doctor—who sees you for 45 minutes and who works regularly with insurance companies—writes a report saying you're capable of sedentary work. Your benefits are terminated.

Without the release, you could appeal that determination and ultimately file an ERISA lawsuit challenging the termination. With the release, you have no recourse. The insurer points to the severance agreement and argues you already waived your right to sue. You traded decades of benefit protection for three months of severance pay, and there's no way to undo it.

Can You Actually Receive Both Severance Pay and Disability Benefits?

The legal answer is usually yes—severance and disability benefits serve different purposes and aren't automatically mutually exclusive. Severance compensates you for losing your job. Disability benefits are insurance payments for being unable to work due to a medical condition. There's no blanket prohibition on receiving both.

The complication comes from offset provisions buried in many LTD policies. These provisions reduce your disability benefits by "other income replacement" you receive. Severance payments might be counted as income, which means your LTD benefits get reduced dollar-for-dollar during the period you're receiving severance. Check your Summary Plan Description for language about "offsets," "deductible income," or "other income sources."

Here's how the offset works in practice. Your LTD policy pays $7,500 monthly. You receive a $30,000 severance lump sum. If the policy treats severance as offsetable income, the insurer might reduce your LTD payments by the monthly equivalent of that severance—let's say $5,000 per month for six months. Your actual LTD payment would be $2,500 monthly ($7,500 minus $5,000) until the severance amount is exhausted, then return to the full $7,500.

The offset is temporary and affects only the amount you receive, not your eligibility. The more significant issue is the release language. If signing the severance agreement forfeits your right to appeal denials or sue the insurer, you're trading short-term cash for long-term legal protection. The strategic calculation becomes: Is $30,000 worth giving up my ability to challenge a future denial of benefits that could total $2 million over my lifetime?

The better approach is negotiating severance without the ERISA waiver. You get the severance money and keep your right to protect your disability benefits.

The Art of Negotiation: Severance Agreements Aren't Final Documents

Most tech employees don't realize that severance agreements are negotiable. The document HR hands you isn't carved in stone. Companies expect some back-and-forth, particularly in mass layoff situations where they're managing hundreds of departures and want clean, litigation-free resolutions.

Having a legitimate disability concern gives you significant leverage. Employers want to avoid lawsuits, especially potential claims under the Americans with Disabilities Act or ERISA. Accommodating a request to carve out disability claims from the release costs the company nothing—they still get releases of employment discrimination, wage-and-hour, and wrongful termination claims. The legal department often has standard carve-out language they've approved before.

Here's the specific language you should request. Copy this and provide it to your employer's HR representative or attorney:

"Nothing in this Agreement shall be deemed to release or waive any claims for benefits under any ERISA-governed employee benefit plan, including but not limited to claims for short-term disability, long-term disability, life insurance, or accidental death and dismemberment benefits."

If your employer pushes back on that broad carve-out, here's a narrower version that still protects your disability rights:

"Employee expressly retains all rights under the Company's Long-Term Disability Plan administered by [insert insurer name], including the right to file claims, appeal denials, and pursue legal action for benefits under ERISA."

Your leverage is strongest in several situations. If you're currently on disability, threatening to litigate is expensive for the company and they'd rather accommodate the carve-out. If you have a documented medical condition, you could raise potential ADA discrimination concerns. In mass layoff situations, the company faces WARN Act compliance scrutiny and wants quick, clean resolutions. If you have a strong employment record and they want to maintain good relationships, they're more likely to negotiate.

The conversation doesn't have to be confrontational. Here's a script that works:

"I appreciate the severance offer and want to resolve this amicably. Before signing, I need clarification about one provision. The release in paragraph 5 appears to waive claims under the LTD plan. I have a medical condition and may need to file a disability claim in the future, or I want to preserve my rights regarding my current disability benefits. Could we revise paragraph 5 to exclude ERISA benefit claims? I'm happy to release employment-related claims, but I need to protect my disability rights."

Companies often accept carve-out language because it costs them nothing. The release still protects them from the claims they care most about—discrimination, harassment, wrongful termination, wage disputes. Excluding ERISA benefits doesn't expose them to additional risk, it just means you retain rights you already have under federal law.

Red Flags in Severance Agreements: What to Watch For

Certain language in severance agreements should make you stop and consult an attorney before signing anything.

Watch for phrases like "including but not limited to claims under any employee benefit plan." That's explicitly targeting your disability, health insurance, and retirement benefit claims. "Against the Company and any related or affiliated entity or insurer" casts a wide net that captures your LTD insurance carrier. "All claims of any nature whatsoever, known or unknown" is about as broad as release language gets.

Pay attention to what's carved out and what isn't. If the agreement specifically excludes certain benefits—"This release does not apply to vested retirement benefits under the 401(k) Plan"—but says nothing about disability, that's a red flag. Courts have held that explicitly carving out some benefits but not others suggests the parties intended to waive the benefits not mentioned.

Be wary if your termination is labeled "voluntary resignation" when you're actually being laid off. This mischaracterization can affect unemployment benefits and creates complications if you file a disability claim later. Insurers scrutinize claims filed around "voluntary" terminations more heavily than legitimate layoffs.

Pressure tactics are warning signs of problematic agreements. "Sign by Friday or the offer expires" violates federal law in mass layoff situations—you're entitled to at least 21 days for individual terminations and 45 days for group layoffs affecting 50 or more employees. Under the Older Workers Benefit Protection Act (OWBPA), if you're age 40 or older, you're also entitled to specific consideration periods and revocation rights. "This is non-negotiable" is almost never true. "Everyone else is signing" is irrelevant to your specific health and financial situation. "You'll lose the severance if you ask for changes" is rarely accurate and often a scare tactic.

Several situations require immediate attorney review before you sign anything. If you're already on short-term or long-term disability, don't sign without legal counsel. If you have a medical condition that started during your employment—even if you haven't filed a claim yet—get the agreement reviewed. If you have a pending disability claim that hasn't been decided, the release could forfeit your right to that claim. If you were recently denied and plan to appeal, the release might prevent you from pursuing that appeal. If your policy has a "disabled while covered" requirement and you're experiencing symptoms that could become disabling, consult an attorney about whether the release affects your future eligibility.

The California and Arizona Angle: State-Specific Protections

Where you work matters when it comes to severance agreements and disability benefits. California and Arizona have different legal frameworks that affect how these agreements are interpreted and enforced.

California provides stronger protections than federal ERISA law alone. The state has robust bad faith insurance laws that can supplement ERISA claims in certain circumstances. California courts tend to be more employee-friendly when interpreting ambiguous contract language, applying the principle that ambiguities should be construed against the drafter—your employer. California Civil Code Section 1542 governs releases of unknown claims, and if the waiver language isn't done properly, the release may be invalid under state law.

The California Labor Commissioner also has jurisdiction over certain severance disputes, providing an additional avenue for relief beyond federal court. California's mini-WARN Act requires 60 days advance notice for mass layoffs, giving employees more time to understand their options and consult attorneys before making decisions about severance agreements.

Arizona operates as a right-to-work state with a more employer-friendly legal baseline. Federal ERISA law governs most disability benefit disputes regardless of state law, but state contract law controls how the severance agreement itself is interpreted. Arizona courts apply traditional contract principles without the same pro-employee tilt you see in California.

The concentration of tech employers in the Phoenix area, particularly Intel's massive Chandler operations, means Arizona attorneys and courts have significant experience with these issues. Similar release language appears across Arizona employers, and local employment attorneys know what terms companies typically accept or reject.

Location matters for bad faith claims that might supplement ERISA lawsuits. State law governs contract formation and whether unconscionability arguments might invalidate an overreaching release. California and Arizona courts have different track records on severance agreement disputes, with California being more willing to scrutinize releases that waive substantial rights for minimal consideration.

Your Action Plan: 5 Steps Before Signing Any Severance Agreement

Protecting your disability rights requires taking specific steps in a specific order. Don't sign anything until you've completed all five steps.

Step 1: Calculate What's Actually at Stake (Day 1)

Do the math yourself so you understand what you're being asked to waive. Take your current annual salary and multiply by 0.60 to get your approximate monthly LTD benefit (most policies pay 60% of salary, though there are maximum caps). Multiply that monthly amount by 12, then by the number of years until you reach age 65. That's the lifetime value of your disability coverage.

Compare that number to the severance offer. Write it down. An Intel engineer earning $180,000 annually would receive about $9,000 monthly in LTD benefits. From age 45 to 65, that's $2.16 million. If Intel is offering $80,000 in severance, you're comparing $80,000 to $2.16 million. That calculation matters when deciding whether to insist on a carve-out or walk away from the severance entirely.

Step 2: Obtain All Plan Documents (Days 1-3)

Request the complete long-term disability policy from HR, not just the Summary Plan Description booklet. The SPD is a summary; the full policy contains the actual terms that govern your benefits. Get the current Summary Plan Description as well, and request any amendments, updates, or notices about policy changes.

These documents show exactly what you would be waiving if you sign a standard release. They also reveal whether your benefits include offset provisions that would reduce disability payments by severance amounts. You can't make an informed decision without reading the actual policy terms.

Step 3: Ask Questions in Writing (Days 3-7)

Send an email to your HR representative or the attorney handling your severance. Keep the tone professional and straightforward. Save the response for your records. Ask these specific questions:

"Does this release affect my rights under the LTD plan? Can you confirm in writing whether signing this agreement would preclude me from filing disability claims in the future? Is [insert your insurer's name] considered a 'related entity' or 'insurer' under the release language in paragraph [X]?"

If they respond that the release doesn't affect your disability rights, you have written documentation like the employee in Schuyler v. Sun Life who successfully defended her right to sue despite the release language. If they confirm it does affect those rights, you know you need to negotiate a carve-out. If they give you vague non-answers, that tells you something too—consult an attorney.

Step 4: Consult an ERISA Attorney (Days 7-14)

Bring three things to your attorney consultation: the severance agreement, your complete plan documents, and medical records if you have a health condition that might lead to a disability claim. Discuss specific carve-out language the attorney recommends, negotiation strategy based on your leverage, and whether you should request a deadline extension.

The cost for severance agreement review typically ranges from $500 to $1,500—a tiny amount compared to the benefits at risk. Schedule this consultation at least two weeks before your signing deadline. Don't wait until the last minute when you have no negotiating time.

Step 5: Negotiate the Agreement (Days 14-21)

Request the specific carve-out language your attorney drafted. Submit it in writing to HR or the company attorney. Get the employer's response in writing—either a revised agreement with your language included or an explanation of why they won't include it.

Don't sign the agreement until the language protects your disability rights. If your employer refuses the carve-out, you're making an informed decision with your attorney's guidance about whether the severance is worth giving up your disability protections.

Remember your legal timeline. Federal law gives you at least 21 days to review an individual termination agreement and 45 days for group layoffs affecting 50 or more employees under the Older Workers Benefit Protection Act. You also get a 7-day revocation period after signing, meaning you can change your mind and undo your signature within seven days. Use that time wisely.

The Real Cost of Getting This Wrong

The consequences of signing a severance agreement without protecting your disability rights can be financially devastating.

If you sign a standard release without a carve-out, you lose the ability to file new LTD claims for any disability that develops later, even if it stems from a condition that started during your employment. You can't appeal denials. You can't sue for wrongful termination of benefits. You can't challenge independent medical exam findings that you believe are inaccurate. You can't fight back against surveillance the insurer uses against you. You can't enforce your policy terms if the insurer breaches the contract.

Consider a real 2025 scenario from a Microsoft employee in California. She signed a standard severance release for $45,000 without requesting a carve-out. Three months after her layoff, she developed a disabling condition that her doctors traced back to symptoms she'd been managing during employment. Her LTD policy would have paid $8,500 monthly to age 65—27 years of benefits totaling approximately $2.75 million. The insurer denied her claim citing the severance release. She'd traded $2.75 million in potential disability coverage for $45,000 in immediate severance.

Another example from Intel's 2025 Chandler layoffs: an engineer already receiving LTD benefits signed a severance agreement with standard release language to collect $35,000. Six months later, Prudential terminated his benefits citing "maximum medical improvement" based on an independent exam. The release prevented him from challenging that termination in court. He lost ongoing $9,000 monthly payments with no legal recourse, all to collect a one-time $35,000 payment.

These aren't hypothetical scenarios. They're real people who signed real agreements without understanding what they were giving up. The severance money runs out in a few months. The lost disability benefits would have provided financial security for decades.

Frequently Asked Questions

The 2025-2026 tech layoffs affecting Intel, Microsoft, Amazon, Chevron, and dozens of other California and Arizona employers have created a perfect storm: thousands of employees facing severance agreements at the same time many are dealing with health issues that could require disability benefits. The pressure to sign quickly, combined with the complexity of ERISA law and release language, means many people are unknowingly forfeiting rights worth hundreds of thousands or millions of dollars.