Severance Packages: Are Benefits, Severance Pay on the Table?
A severance package (also called a severance agreement) is a contract entered into between a departing employee and his or her employer. In a typical severance agreement, the outgoing employee agrees not to sue the employer for wrongful termination or related legal claims, while the employer agrees to give the employee some form of additional compensation, often called a "severance package." Such compensation (called "consideration" in legal terms) is required in order for the departing employee's release of liability to be valid. If there is no such consideration, the employee will retain the right to sue the employer for any claims he or she may have.
Negotiating Severance Terms
Several things should be kept in mind when considering and/or negotiating a severance agreement with an employer:
- Before employees execute a release of all claims, they should make sure that the agreement entitles them to adequate additional compensation.
- Employees may also wish to obtain a release of rights from the employer, to be protected from any potential claims for wrongful behavior or harassment that might be brought against the employee.
- Severance provisions relating to certain conditions or characteristics, such as age, should be specifically worded to ensure that any potential liability for discrimination is waived.
The Compensation Package
There is no federal law requiring an employer to give an employee severance pay. Severance pay is a matter of agreement between an employer and an employee. The amount and type of compensation in an given severance agreement will vary according to specific circumstances, but the amount of severance pay is usually based on a number of factors, including:
- Length of the employee's tenure with the employer;
- Circumstances under which the employment relationship ended (i.e. company "downsizing," employee misconduct, or layoff)
- Employer's financial condition (i.e. filing for bankruptcy, or experiencing economic growth)
Employee Benefits and Severance
Employers are not required to provide benefits to employees as part of their compensation packages, but most employers do provide benefits to their full-time employees. Some of the most common benefits provided to employees are group health insurance and pension programs. A severance agreement may contain rights to continue in a benefit program, or it may make contributions towards the benefits that the employee will be losing by leaving the employer.
Next Steps: Free Claim Review
Whether employees are laid off or fired, they may be able to negotiate a severance pay package, including compensation and continuation of certain employment benefits. If you are in danger of losing your job, you should speak with an experienced employee rights attorney who can negotiate a severance agreement on your behalf and ensure that your legal interests are protected. Start now with a free claim review.