Severance Packages
January 11, 2021
A severance package is generally some amount of pay given to employees upon termination of employment. A severance package can also include continuing health insurance or other benefits for a specific time upon termination.
The purpose of a severance package is not only to assist employees while they transition from one job to another or begin a job search. It is also meant to protect the company from the employee making disparaging remarks, seeking employment with a competitor, or filing a lawsuit against the company. Therefore, if an employee acts in a prohibited way by the severance agreement, he will not be entitled to the payor benefits offered. Essentially, upon signing a severance agreement, an employee is selling his right to bring an action against the company.
The Fair Labor Standards Act, or FLSA, is the law that provides the federal minimum wage, requirements for overtime pay, and other provisions by which an employer must abide. However, no provision within the FLSA requires an employer to provide an employee with a severance package. It only requires that an employer pay an employee’s wages through his last day of work.
There may be laws that require an employer to provide severance packages to employees in certain states. In Virginia, however, no law requires an employer to provide a severance package absent a few exceptions. Additionally, D.C. labor laws do not require that an employer provide severance pay to an employee.
When is a Severance Package Required?
While not required by federal law or Virginia and D.C. law, it is necessary where an employee was hired under an employment contract that contains provisions that state a severance package will be provided to the employee upon termination. A severance package may also be required where a company’s policy states that one must be offered to employees who have been terminated, but typically only when that termination was not for cause or gross misconduct.
Suppose an employee was entitled to severance under an employment contract or per company policies, and the employee did not receive the severance package upon termination. In that case, the Employee Benefits Security Administration (EBSA) may assist the employee in getting the severance pay or benefits.
A severance package may also require an employee to be terminated as part of a mass layoff. The Worker Adjustment and Retraining Notification Act (WARN Act) states that employers with 100 or more employees must give the employees 60 days’ notice before a mass layoff. The employer fails to provide the required 60 days’ notice; the employees are entitled to 60 days’ wages as severance pay.
What Should a Severance Package Include?
When an employer provides a severance package to an employee, it should include:
- The purpose of the severance package noting that it is to assist employees while they seek other employment
- Conditions and circumstances under which the employer will provide the severance package and those under which the employer will not offer a severance package
- How the employee will be paid: Severance pay can be delivered in a lump sum or over days, weeks, or months for a specified period.
- Identifying employees who are eligible to receive a severance package
- The right to modify an agreement. Typically, the employer will protect itself by holding the exclusive right to modify or terminate a deal and what will happen if the company is sold or through a merger or acquisition.
- Documents an employee is required to sign, including legal agreements and agreements to “hold the company harmless.”
Employees Over the Age of 40
Employees over the age of 40 are a protected class of employees covered by the Age Discrimination in Employment Act (ADEA) and the Older Workers Benefit Protection Act (OWBPA). Under the OWBPA, where a severance agreement states that an employee over 40 waives his right to bring any ADEA claim, the following requirements must be met:
- Knowing and voluntary signing of the release of ADEA claims
- ADEA must be spelled out in the agreement
- The employer must advise that the employee consult with an attorney before signing the agreement
- Employees must be given 21 days to consider the agreement upon the employer making a final offer. Additionally, the employee must be given seven days to revoke his acceptance of the agreement.
- The release and agreement must be made in exchange for some benefit to which the employee would not otherwise be entitled. This can be such as severance pay over which he is already permitted.
Considerations When Signing an Agreement for a Severance Package
If your employer offers you a severance package, first make sure you read and understand the severance agreement since you likely give up certain rights. Many companies hope that you will sign the deal as soon as you receive the offer, significantly when the agreement’s provisions limit or bar your right to file any lawsuit against the company.
Next, understand that those packages can be negotiated based on the size of the company and your length of employment. Most items in a severance agreement are negotiable, including the amount of money and the benefits you will receive.
Additionally, the following factors should be considered when you are preparing to sign a severance agreement:
- Your pay, whether lump sum or periodical, and the timing of your payment.
- Severance pay is taxable as income. Make sure you understand whether your employer will withhold taxes or whether you will be responsible for paying them.
- Are there any non-compete provisions? For example, this could affect your ability to find employment in your field in a particular region.
- Confidentiality provisions, including those provisions that prohibit you from making any disparaging remarks about the company.
- Claims that are waived upon signing the agreement and any rights you are giving up.
- The consequences of violating the agreement.
- Any continuation of benefits.
Call the Virginia and D.C. Attorneys of McClanahan Powers, PLLC
If your employer has offered you a severance package, you may be confused about the fine print regarding your rights and benefits. The experienced attorneys at McClanahan Powers, PLLC, will help you understand what is provided in the agreement and how to negotiate any inadequate provisions. Call our office today at 703-520-1326 or contact us online to schedule a consultation with an attorney.