What is a Severance Agreement?

A severance agreement is a type of employment contract that explains how an employee will be compensated at the time dismissal, layoff, or termination of employment.

There is no legal requirement for U.S. employers to pay severance to employees who separate from employment unless there is a severance agreement, union contract, or other company policy in place. Whether terminating an individual employee or performing large-scale layoffs, many companies utilize termination or severance agreements.

Severance agreements can come about at any stage of employment: at hiring, during the course of employment, or even at the end. When one is presented to an employee at the end of employment, it will often include a “release of all claims.” The effect of this release is that the employee gives up any claims they may have against the company, whether known or unknown, in exchange for compensation beyond what they have earned.

• The main purpose of a severance agreement is to provide a degree of financial security for employees who are faced with involuntary job loss. Employees who quit or retire from their jobs may also be entitled to severance in the case of certain types of layoffs or under the provisions of a negotiated employment contract.
• The amount employees are compensated under a severance agreement varies greatly. Sometimes, severance pay provides a worker with one or two weeks’ salary. In other cases, a severance package can provide a terminated employee with as much as a year’s salary. Because severance agreement terms can vary so widely, it is critical that you understand the specific terms of any severance agreement to which you are a party.
• A company may put conditions on employees’ eligibility for severance as part of a policy or employment contract. For example, a company’s policy may provide that it pays a certain amount of severance to employees who are laid off 1) without cause and 2) after working for the company for a specified period of time. Understanding the precise terms and conditions of your severance agreement will give you the security of knowing your legal rights and obligations, including when, how much, and under what conditions you can expect to collect after termination.

Employers must follow certain local and federal rules and regulations when laying off multiple employees or closing down facilities. If you are being terminated as part of a large-scale layoff, you have rights. If you’ve been presented with a termination or severance agreement, don’t sign away your rights. Consult with an employment attorney to make sure you preserve any claims you may have against your employer and collect all the compensation you’re entitled to.

If you need help understanding your severance agreement, are unsure as to whether you are entitled to severance pay, or believe that you have been unfairly denied severance pay, legal help is available. An experienced employment attorney can help you understand, negotiate, or enforce a severance agreement to protect your legal rights.