FAQ: Severance Agreements

Lawyers.comsm

  • Is severance pay required by law?

  • Am I entitled to benefits if my employer has a severance plan?

  • My employer always used to pay severance. Now it says there's no severance plan at all. Can I still get severance?

  • Can my employer make me sign an agreement not to sue it in exchange for a severance package?

  • Why does my severance package give me 21 or 45 days to consider the deal? Can I accept it before the time is up?

  • What happens if I ask my employer for a better severance package?

  • I'm thinking of taking the severance package, but I'm not sure about what I'm giving up and what it's worth, if anything at all, by agreeing not to sue my employer. What should I do?

  • How much severance pay should I expect?

  • How will my severance pay be taxed?

    Q: Is severance pay required by law?

    A: No. There's no legal requirement that an employer provide severance pay or a severance "package" to its employees. However, almost every employer must pay into a state-run unemployment compensation fund. In most cases, workers who are laid off or fired for no fault of their own can collect unemployment benefits.

    Return to index . . .

    Q: Am I entitled to benefits if my employer has a severance plan?

    A: Maybe. Your employer's severance plan doesn't have to cover all employees. The severance plan should spell out exactly which employees are entitled to the benefits of the severance package. The plan should also spell out when the severance package kicks-in, such as when an employee is laid-off, quits, or resigns.

    The plan can change at any time. There's nothing to stop an employer from changing it or getting rid of it altogether. In most states, your employer is required to give you a copy of any severance plan it has in place or creates after you've been hired. Get a copy of your employer's plan and see if you're covered. If you have any questions, ask your supervisor or human resources department.

    Return to index . . .

    Q: My employer always used to pay severance. Now it says there's no severance plan at all. Can I still get severance?

    A: Generally, employers can cancel or change their severance policies at anytime. Nonetheless, you may be able to establish a right to severance pay if your employer led you to believe that you'd get severance when you left its employ. You can do this proving something like:

    • It consistently paid severance to employees in the past; show which employees got paid, how much, and under what circumstances (laid off, fired, resigned, etc.)
    • You and your employer have a written employment contract stating that you'd be paid severance. An oral promise from your employer may do just as well
    • A current employee handbook states that severance will be paid to employees who are laid off or terminated out of no fault of their own (the employee wasn't fired for disciplinary reasons, for example)

    Return to index . . .

    Q: Can my employer make me sign an agreement not to sue it in exchange for a severance package?

    A: Yes; this is very common. Your right to sue your employer is a valuable right, and it has to give you something extra in return for it. So, it's perfectly legal for your employer to refuse to give you severance benefits unless you sign a release.

    Return to index . . .

    Q: Why does my severance package give me 21 or 45 days to consider the deal? Can I accept it before the time is up?

    A: Generally, you have to be given some time to think about the severance package. It can range from a few days to a few weeks. The 21-day (or 45-day) period is in there because, most likely, the severance package contains a release in which you promise not to sue your employer in exchange for the severance benefits. Under a federal age discrimination law, the Older Workers Benefit Protection Act (OWBPA), if you're at least 40 years old, you have to be given 21 days, and sometimes 45 days, to consider the severance package. If you're not given that correct amount of time, your waiver of any age discrimination claim is no good, and you could still sue your employer.

    Usually, your employer can't withdraw its offer of severance during the waiting period. However, you don't have to wait the full 21 or 45 days. You can accept it any time.

    The severance offer probably also includes a 7-day period to change your mind and "revoke" or cancel your acceptance of the severance offer. This, too, is required by the OWBPA. However, this 7-day period can't be waived. So, you probably won't see any of your severance pay until at least 7 days after you accept. This way, the employer knows that you can't revoke the deal.

    Return to index . . .

    Q: What happens if I ask my employer for a better severance package?

    A: Usually nothing, but you could lose the deal. That's because, in the legal world, by trying to negotiate a better deal, you're actually declining or rejecting it. The employer is then free to accept or decline your proposed deal, or "counteroffer." If it rejects it, then you lose the whole severance deal.

    However, this doesn't happen too often. Most employers will let you take their original offer even after you've made a counteroffer. You need to be certain, though, that you accept the offer within the time specified in the severance package.

    Return to index . . .

    Q: I'm thinking of taking the severance package, but I'm not sure about what I'm giving up and what it's worth, if anything at all, by agreeing not to sue my employer. What should I do?

    A: Talk to your lawyer as soon as possible. Depending on your age and the severance offer, you may have only a few days to accept the severance package. Your attorney can help you determine if you have any legal claims against your employer, how much they may be worth if your suit is successful, and how much a suit might cost you in attorney's fees and court costs. All of this information can help you determine if your employer's offer is fair.

    Return to index . . .

    Q: How much severance pay should I expect?

    A: Every severance agreement is different. Some employers will offer one or two weeks of salary as severance pay, while others may use a formula based upon your current salary and the number of years you've worked for the employer. Some employers have different packages for each level or tier of employees. So, severance packages for executives and managers may be much larger than those offered to staff employees.

    Other than wage-based severance pay, some employers will include payment for unused vacation time, while others won't. And, some packages may include services to help employees find new jobs, like job placement and resume services.

    Return to index . . .

    Q: How will my severance pay be taxed?

    A: It depends on how you're paid. If you take your severance pay as a lump sum, that is, you're paid everything all at once, the payment will be treated as a "bonus," which means that taxes may be withheld at a much higher rate compared to your usual wages.

    If you choose salary continuation and get your severance pay over time, like receiving your weekly paycheck, your severance pay will be taxed as regular income.

    Return to index . . .


    • Employment Law to Intellectual Property: Every Legal Issue. One Legal Source. Lawyers.com

    tax lien

    a statutory lien on property for taxes due giving the taxing authority a security interest in the property

    Cyber attack is met with speculation and shrugs; Some think N. Korea launched the virus whose targets included the White House and NYSE.

    Despite a broad and persistent cyber attack whose targets included the White House, the New York Stock Exchange and the Washington Post, government websites...

    Dogfighting ring busted: St. Joseph teacher among dozens facing charges across six states

    Jul. 9--A physical education teacher at a state school in St. Joseph was arrested Wednesday as part of what Humane Society of Missouri officials describe...

    Stricter rules for mortgage brokers keep hundreds out

    In its first year of licensing mortgage professionals, Massachusetts disqualified hundreds of applicants from working in the industry because they had...

    More Legal News


    Terms & Conditions   Privacy   Copyright © 2009 LexisNexis, a division of Reed Elsevier Inc. All rights reserved.