Employee Rights to Severance Pay

Severance pay is money that’s provided to an employee who is leaving the company for reasons other than retirement. Typically, the circumstances surrounding severance pay are layoffs, elimination of a position, and a mutual agreement to part ways — for a variety of reasons. The purpose of offering severance pay is to help the employee stay afloat economically while they’re looking for a new job.

 

Commonly Asked Questions

What is in Your Severance Package?

Severance pay. Most severance packages include extra compensation. The amount can vary greatly, depending on your employer (and what rights you’re being asked to give up). Some employers offer a standard one or two weeks of salary. Other employers use a formula based on your current salary and the number of years you've worked for the employer (for example, one week of salary for every year of service).

Accrued time off. Some employers offer to pay you for accrued vacation, holidays, and sick time that you haven't used before the layoff. Some may offer to pay a portion or percentage of your accrued time off, while others may offer nothing at all.

Before you agree to accept what your employer is offering, check your state law. Some states require employers to pay out all accrued, unused vacation time or paid time off (PTO). If your state has such a law, or you have an employment agreement that already obligates your employer to pay you for this time, you should not have to give up any rights to get it.

Insurance. You don't need to be told that insurance is expensive. Generally, your employer-paid insurance benefits end when you're laid off, unless you continue them at your own expense. Before you sign the severance agreement, consider the types of insurance you may need:

Unemployment benefits. In some states, you may agree to waive or forfeit your right to receive unemployment benefits in exchange for severance—or the state’s unemployment laws may disqualify you from receiving benefits for as long as your severance lasts. In other states such as Florida, you have the right to benefits regardless of any severance you receive or any contract you sign to the contrary. You should check your state's unemployment agency to see if you're eligible for benefits if you accept a severance package.

Payment method. You may get to choose between being paid all at once in a lump sum or periodically, just like receiving weekly or biweekly paychecks (sometimes called salary continuation).

Time to decide. The severance package will tell you how long you have to consider the offer. Sometimes you're given only a few days; in other cases, you may get a week or two. If you're at least 40 years old, the federal Older Workers Benefit Protection Act requires your employer to give you at least 21 days to think about the offer and 7 days to change your mind and revoke your acceptance after you sign.

The key here is to make a decision before the offer expires. If you want to negotiate with your employer, talk to a lawyer right away, so you’ll have time for offers and counteroffers.

What is a Release of Claims?

A release of claim releases the employer from all claims the departing employee may have against the employer. An important note to keep in mind here is that employees over 40 who are leaving the company must sign a separate release for age discrimination lawsuits, which aren’t covered under a standard release of claims.

Who has a right to severance pay?

Employees do not have an inherent or automatic right to severance pay upon separation from employment.  Nevertheless, you may be entitled to severance pay under certain circumstances. First, if you work under a contract or your employer has an established policy or practice of paying severance, you may be entitled to severance. Secondly, if you agree to release certain rights, such as the right to sue for wrongful discharge, you are entitled to compensation for your release of those rights. Additionally, under the Federal Plant Closing Act of 1988, you may be entitled to severance, under the law, if your employer fails to give you the required 60 day notice of a plant closing or mass layoff.

In most circumstances any severance paid will be conditioned upon a full and final release of any legal claims you may have against your employer.  Accordingly, we strongly recommend that you consult with qualified labor counsel before executing any severance agreement.