Severance Pay and Benefits

A severance agreement is a contract between a departing employee and an employer. The severance payment is a reward for service and part of an exchange of duties between the employee and employer. In the agreement, the employee typically agrees not to sue the employer for wrongful termination or any other employment issue. Because the employee must receive something valuable in return for the release of liability to be valid, the employer agrees to pay the employee additional compensation. This is often called the severance package. Contact an employment law attorney if you have questions about severance agreements.

Terms of the Severance Agreement

The terms of a severance agreement may be outlined in an employment contract or written in the employee handbook. They also may be specified at the time the employee leaves. In considering a severance agreement, employees and employers should keep these important issues in mind:

• Employers will want to require employees to execute a release of all claims before any severance payment is made.
• Employees may wish to obtain a release of claims from the employer to be protected from allegations of harassment or other misconduct.
• Severance provisions relating to certain conditions or characteristics, such as the employee's age (particularly if the employee is over 40), should be specifically worded to ensure that liability for such matters is waived.

Severance pay is usually based on the length of time the employee worked for the employer. It can also be influenced by the reason the employee was terminated.

No federal law requires an employer to pay severance to a departing employee. Severance pay is a matter of agreement between the employer and the employee. Because of the legal issues involved and the potential liabilities and consequences for both parties, it is helpful for each side to be represented by an attorney.

Employee Benefits

Employers are not required by federal law to provide benefits to employees as part of their compensation packages, but many employers do provide benefits to their full-time employees. Some of the most common benefits employees receive are group health insurance and pension programs. A severance agreement may establish the right to continue receiving benefits for a period of time. Alternatively, the severance agreement may provide for payments to compensate for the benefits that the employee will lose by leaving the employer.

Employee Rights

If an employer has promised a severance package through a valid employment contract, the employer is obligated to follow through on that promise. In addition, if an employee over 40 years of age is signing a severance agreement that releases the employer from any age-related claims, the employee will have an extended period of time in which to consider the agreement.

Consult with an Attorney

Employees whose employment is being terminated may be able to obtain severance pay and continuation of some benefits. It is important, however, to have the advice of an employment law attorney to ensure that key rights and interests are protected. If you are considering a severance agreement, contact an attorney for advice on how to proceed.

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