Severance Agreement and Severance Pay FAQs
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Contents
Must employers provide severance pay?
If my employer has a severance plan, do I
get benefits?
Does a severance plan have to be in writing?
I have to agree not to sue to receive severance pay. Can they do that?
Why do I have to wait 21 (or 45) days to accept my agreement?
What happens if I ask for a better package?
I do not know what my rights are worth. What should I do?
Are there any "rules of thumb" for how much severance an employer
will pay?
Can you suggest other links or resources on severance agreements?
Q: Is there a law that requires employers to provide severance pay?
No. An employer has no obligation to provide severance pay. The only benefit that employers must by law provide is unemployment compensation.
Q: I heard that my employer has a severance plan. If so, am I entitled to benefits?
If an employer creates a severance plan, the employees covered by the terms of the plan are entitled to the benefits that the plan provides upon the occurrence of the event that triggers benefits.
However, an employer may create, modify or abolish a severance plan as it sees fit. Most employers choose to have no severance plan at all.If your employer has a severance plan, you are entitled to a written summary description of it. The plan description will tell you what, if anything, you are entitled to receive.
Q: My company has always paid severance, but now they say they do not have a severance plan. Do they have a severance plan or not?
Unless it is written, it may be difficult, though not impossible in some places, to prove that your employer established a severance pay plan by providing severance to employees that it has terminated in the past. You must be able to show such a predictable pattern of severance benefit payment that you could tell:
- who was eligible for benefits
- when they would become eligible,
- how much they would receive and
- the source of those payments.
Unless the employer has been consistent in the past, this may be difficult to show. In addition, in some places, such as Ohio, Michigan, Kentucky and other states covered by the Sixth Circuit Court of Appeals, benefit plans such as severance plans generally must be in writing.
Q: I have to agree not to sue my employer in order to receive any severance benefits. Can they do that?
Yes. So long as the employer writes the plan to condition a release of rights (i.e., a promise not to sue) on payment of any severance benefits, you must agree not to sue your employer in order to receive them
Q: The severance agreement offered to me gives me 21 (or 45) days to consider it. What does this mean? Can I accept it before that time?
In order for your promise not to sue for age discrimination to be enforceable, employers must give you time to consider any offer. This is designed to prevent "gun to the head" decisions by employees. As a legal matter the employer cannot rescind the offer during the waiting period, giving you time to consider it. However, the waiting period is for your benefit. Generally speaking, if you want to accept the offer before the end of the waiting period, you can do so.
Q: What happens to the waiting period if I ask my employer for a better package?
Technically, once you ask for a better package you have "rejected" the employers offer by making a "counteroffer", which the employer can accept or reject. Therefore, you run the risk of losing the guaranteed offer by making a counteroffer. However, in practice most employers will not rescind their offer if you make a counteroffer, but will leave their original offer on the table if they do not want to negotiate it. To be clear, though, you must be prepared to lose the offer if you make a counteroffer.
Q: I am inclined to accept the severance package, but I do not know what, if anything, my rights are worth that I will be giving up. What should I do?
Consult legal counsel to evaluate any claims that you may have. Find out what your claims are worth if you were to win, the chances that you have of winning and the attorneys' fees and court costs that you will pay in an effort to win. You should then compare this (plus the aggravation and uncertainty of litigating) to the benefits offered by your employer.
Q: Are there any "rules of thumb" for how much severance an employer will pay?
No, but we will offer some anyways.. Again, an employer has no obligation to provide severance payments. Employers rarely offer severance pay to hourly workers. Employers who offer severance will typically provide one week per year of service to employees below the officer or executive rank, and up to a month per year of service to executives and officers. In addition, some severance plans cap benefits at a specified level, such as one week or month of severance pay for the first 18 years of employment
Where can I find more answers about this topic?
MEL has collected answers about this topic in a database that you can search. You can search MEL's Answers using the search box at the top of this page or the keywords below. For Severance Benefit answers, try these keywords:
- Benefits
- Contract, including employment at-will
- Severance
- Wage payment, including final pay and vacation
For a personalized search, go to MEL's Search Answers page.
If you still cannot find the answer to your question, Ask MEL and we will send your question to attorneys in your state.
Can you suggest other links or resources on severance agreements?
The Wall Street Journal published How to Negotiate a Fair Severance Package by Paul Tobais and Susan Sauter. (CareerJournal.com).
The Riley Guide has a chapter on Executive Compensation and Severance that includes additional severance pay links and resources.
Do you want to consult your own employment attorney?
Schedule a consultation with Fortney & Klingshirn if you live in Northeast Ohio. If you live live elsewhere, search for a lawyer from your state.
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