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What is a Severance Package?

A severance package is usually offered to an employee after they have been terminated, and generally includes pay and benefits. Although many employers offer them, there are no laws making severance packages mandatory. An employer is only legally required to provide a terminated employee any unpaid wages and unemployment benefits, if the employee is entitled to them.

There is no uniform standard for determining what goes into a severance package. They can vary based on the employee and may include different things. Sometimes, you may be able to negotiate the terms of your severance package. Most times, a severance agreement will require you to agree not to sue the employer for wrongful termination.

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What is Included in a Typical Severance Package?

While severance packages vary, a lot of times they are based on length of employment. For example, an employer might offer a week's pay for every year someone has worked for the company. However, an employer can choose to offer any amount they want.

In addition, some employers offer different packages depending on the level of the employee. For example, a company may choose to offer their executives a much higher severance package than an entry-level employee.

You should also be aware that severance pay does not always come in the form of cash. Instead, many companies will extend health benefits past termination; cover certain future medical expenses; provide outplacement services; and/or offer a range of other employee benefits. Sometimes, a severance package can include both cash and benefits as well.

Can I Negotiate the Terms of my Severance Pay?

Often times, companies will have policies that state the way that severance pay is determined. These policies will generally include when you are entitled to severance pay; how it is calculated; and what the package will include. This could also be addressed in an employment contract. If this is the case, the employer would be legally entitled to offer you severance pay.

However, you may have an opportunity to negotiate your severance package. If that occurs, the following factors will probably be brought up during negotiations with your employer:

  • Years of service with the company;
  • Employee's level or role within the company;
  • The size of the company; and
  • How the severance package was outlined in the company policy and/or employment contract.

If I Accept Severance Pay, can I Still Sue?

A majority of the time, severance agreements contain clauses where the employee waives his or her right to sue the employer for wrongful termination. If this clause is included in your agreement, the employer will not provide any type of severance pay unless the agreement not to sue is put in writing.

Although this may seem troublesome, it is legal for an employer to provide severance packages in exchange of the employees release of rights. Although there are certain situations where these agreements may be held unenforceable, courts usually uphold severance agreements. If you have accepted severance pay, sue for wrongful termination, and the court decides the agreement was invalid you may have to pay back your severance pay if the lawsuit continues.

Do I Need a Lawyer?

It is very important to consider how obtaining a severance package will affect your legal rights and ability to bring a claim against the employer. If you think you are being wrongfully terminated, you should contact an employment lawyer to review any documents that your employer wants you to sign. The lawyer can explain what rights you are giving up if you accept the severance package, and help you make the best choice depending on your situation.

Photo of page author Ashley Folk

, LegalMatch Legal Writer

Last Modified: 05-01-2018 08:08 PM PDT

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