What You Need to Know About Severance Packages

If you are fired or laid off, you may be offered a severance package. Unless you have an employment contract that requires severance, there is no legal requirement for an employer to offer it. Read more below about the reasons employers might use severance and how you should assess a package offered to you.

When Severance Pay is Required

​If you have an employment contract that provides for pay upon termination, the terms of that contract will control what you are entitled to. Most often these contracts provide for separation pay and benefits if you are laid off or terminated without cause. Sometimes the amount depends on length of employment. More often in a contract it is just an amount agreed ahead of time.

If there is an employee handbook that lays out a severance policy, your employer will most likely follow it but in most situations does not have to.

Why Employers Offer Severance

Even though it is not usually required, there are good reasons for employers to offer severance. One is simply to acknowledge an employee's service and contribution by providing some amount of pay to tide them over until they can find a new job.

Another reason is your employer may want to be sure they do not have to worry about legal action from you in the future. Most severance agreements include a release of claims in exchange for the settlement. This does not necessarily mean your employer thinks they did something wrong. If you have questions about whether you have any legal claims, however, you should consult an employment lawyer before signing the severance agreement.

How Much Time Do You Have to Consider a Severance Agreement?

If you are being asked to release claims involving age discrimination, your employer has to give you twenty-one (21) days to consider the agreement. You should also be given an additional seven (7) days to revoke your acceptance if you change your mind after signing. 

Even if the release is for other kinds of claims, you should be given a reasonable amount of time to consider it. You should not be asked to make a decision and sign on the spot. If nothing else, an employer's insistence on an immediate decision is a red flag for you that you should consult an employment law attorney.

What Should Be Incuded In the Agreement?

Since the law does not generally require severance pay, the amount of pay and benefits is usually a matter of agreement. Most often what you will be offered is some number of weeks pay and continuation of health insurance benefits for that period of time.

If your employer has a severance policy, it will usually spell out an amount of pay for each year of service, and what employee benefits are generally continued during the severance period. Though these policies are not generally binding, they can be helpful in assessing what your company has offered. If you are offered more than what the policy suggests, your employer may have a concern about legal liability.

Many severance agreements will state that the severance includes payment of any accrued and unused vacation time. You should know that departing employees are entitled to payment for vacation time even if you do not sign the agreement. If the agreement offers payment for unused sick days, this is an extra not already required by law.

How Will Severance Pay Affect Unemployment Compensation?

If you receive severance pay without signing a release, that pay will count against your unemployment compensation. But if you have to sign a release of claims in order to receive the pay and benefits, it does not. This is true whether you receive payment over a number of payroll periods or a lump sum payment upon signing the agreement.

Why You Should Review Your Severance Agreement With a Lawyer

Generally, the basic exchange in a severance package is some amount of money or other benefits for you agreeing to release any potential employment law claims against your employer. You may not know when they hand you the documents whether you have any valid legal claims, much less how the value of those claims compares to the amount of money they are offering. You should seek the advice of an experienced employment lawyer to help you understand whether you have any claims that have a value beyond the severance pay you have been offered.

In addition, some severance agreements require you to re-confirm any prior agreements you had with the employer. Most commonly referenced are non compete agreements and non solicitation agreements. You may have rights to resist enforcement of these earlier agreements. An employment attorney can help you evaluate this before you sign a new agreement essentially "re-upping" on your prior contracts.

How We Can Help

If you are unsure whether you have valuable legal claims you would be giving up, concerned about the impact of re-confirming a non compete or other agreement, or simply need help understanding what your rights and obligations are under a severance agreement, we can help.  You can use the button below to schedule a call back from a member of our team, give us a call at  781-784-2322, or fill out our web form  to let us know a little more about your situation.

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