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Severance Agreement and Severance Pay FAQs

By Neil E. Klingshirn

Contents


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.

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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.

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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.

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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

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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. Since the waiting period is for your benefit, however, you are generally free to accept the offer before the end of the waiting period.

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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.

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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.

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Are there any rules of thumb for how much severance pay an employer may offer.

No. Again, an employer has no obligation to provide severance payments and employers rarely offer severance pay to non-union, hourly workers in the United States.  

Employers who offer severance will typically tie the amount of pay to seniority, such as one week of severance per year of service.

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Where can I find more answers about this topic?

Mel has collected Questions and Answers, Wiki articles and Blog articles about severance pay. Wili Articles include:
In addition, the Riley Guide has a chapter on Executive Compensation and Severance that includes additional severance pay links and resources.

If you still cannot find the answer to your question, Ask mel and we will send your question to attorneys in your state.

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I want to consult an employment attorney about my severance pay issues. Do you have any suggestions?

You can schedule a consultation with Neil Klingshirn if you are in Northeast, Central or Southeast Ohio (that is, near Akron, Canton, Cambridge, Cleveland, Columbus, Lorain, Marietta, Youngstown or Wooster Ohio).

If you live live elsewhere, we suggest that you:

  • search for a lawyer on My Employment Lawyer;
  • search the National Employment Lawyer's Association's (NELA) attorney directory;and
  • search the attorney directory of a state affiliate NELA, such as the California Employment Lawyer's Association. To find an affiliate in your state, search for "[State] Employment Lawyer's Association"; or
  • consult the general "Bar Association" in your area, which is a trade association of local attorneys.  It will probably have an attorney referral service. Ask for attorneys who practice employment law.

Most attorney directories and referral services provide only the attorney's name and contact information. Therefore, you may need to do some more research. As a general rule, the best employment attorneys:

  • Write and speak on employment law topics;
  • Are recognized by their peers (for example, are listed in Super Lawyers or have "AV" ratings); and
  • Are Board Certified in employment law in those states that offer specialty certification.

On mel, you can see who has contributed articles and answers to mel, as well as the quality of that work.

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