Severance Packages

January 11, 2021

A severance package is generally some amount of pay that is given to employees upon termination of employment. A severance package can also include a continuation of health insurance or other benefits for a certain 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. If any employee acts in a way that is prohibited by the severance agreement, he will not be entitled to the pay or 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.

In certain states, there may be laws that require an employer to provide severance packages to employees. 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 required 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.

If 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, the Employee Benefits Security Administration (EBSA) may be able to assist the employee in getting the severance pay or benefits.

A severance package may also be required where an employee was 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. Where 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 provide a severance package
  • How the employee will be paid. Severance pay can be paid in a lump sum or over the course of days, weeks, or months for a specified period of time.
  • Identifying employees who are eligible to receive a severance package
  • The right to modify an agreement. Typically, the employer will protect itself in holding the exclusive right to modify or terminate an agreement and what will happen if the company is sold or goes 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 who are 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, such as severance pay over that to which he is already entitled.

Considerations When Signing an Agreement for a Severance Package

If you are offered a severance package by your employer, first make sure that you read and understand the severance agreement since you are likely giving up certain rights. Many companies hope that you will sign the agreement as soon as you receive the offer, especially when the provisions of the agreement 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? This could affect your ability to find employment in your field in a certain region.
  • Confidentiality provisions, including those provisions that prohibit you from making any disparaging remarks about the company.
  • Claims that are waived upon your 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 you have been offered a severance package by your employer, 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 unsatisfactory provisions. To schedule a consultation with an attorney, call our office today at 703-520-1326 or contact us online.