Severance pay, a benefit offered by many employers during involuntary termination, isn't federally mandated. However, unionized employers might be bound by collective bargaining agreements, and some non-union employers may face state/local law obligations. Severance agreements releasing ADEA claims must adhere to OWBPA requirements for legal enforceability. Severance plans beyond ad hoc agreements fall under ERISA regulations.
ERISA mostly affects larger organizations implementing formal severance plans; smaller employers often handle severance ad hoc. The article highlights the surprise many former employees of large organizations experience upon discovering they lack entitlement to standard severance.
The article includes links to various resources, such as SHRM toolkits, legal firm client alerts, and surveys on severance benefits from organizations like Compensation Resources, Lee Hecht Harrison, RiseSmart, and Willis Towers Watson. It also provides access to sample policies and forms related to severance pay.
The article discusses the implications of severance agreements, including NLRB limitations on nondisparagement clauses, and the need for employers to update their templates to comply with legal changes. Several links to legal analyses of severance agreement issues are provided.
The complexities of tax implications related to severance pay are addressed with links to articles discussing potential tax traps and IRS regulations.
The concluding section provides access to sample policies and forms readily available through resources like SHRM and various universities. It also includes links to related documents such as an Older Worker Act Waiver form.
Severance pay is a benefit offered by many employers when involuntarily terminating the employment of an employee.
There is no legal obligation under the federal Fair Labor Standards Act or any other alternative federal law to provide severance pay to terminated employees. However, many unionized employers may be obligated to provide severance pay benefits under the terms of a collective bargaining agreement, and some non-unionized employers may be obligated to do so in accordance with any relevant state or local law provisions.
Severance agreements providing for a release of claims under the Age Discrimination in Employment Act (ADEA) must comply with several specific requirements of the Older Workers Benefit Protection Act (OWBPA) for such a release to be legally enforceable.
Severance plans other than ad hoc severance agreements must comply with ERISA, as do other welfare benefit plans and defined benefit and defined contribution pension plans.
Apart from situations where severance pay is mandated by a collective bargaining agreement or state law, ERISA severance plans are implemented mostly by larger organizations. Smaller employers tend to prefer to handle severance pay on an ad hoc basis. Employees who have previously been employed by large organizations are often shocked to discover, upon involuntary termination, that they are not entitled to “two weeks of severance pay.”
Read the rest of the toolkit: Designing and Administering Severance Pay Plans SHRM Toolkit
Severance: To Pay or Not To Pay Sills Cummis | Jul 2020
More Organizations Are Expanding Severance Benefits, Survey Finds SHRM | Jun 2019
Severance Tied to Tenure and Position as Formal Policies Decline SHRM | Mar 2018
Tread Carefully Across the Severance Minefield SHRM | May 2017
HR Lessons from Bill O'Reilly's $25 Million Severance Deal SHRM | Apr 2017
Practices/Trends Data Some or all of the following resources may be available on a fee-only basis and/or require download after completion of a brief form. Before making a purchase, confirm with the vendor that the survey contains the type of data you seek.
2020 Survey of Severance & Separation Benefits Results Compensation Resources
Severance & Separation Benefits Survey (2020) Lee Hecht Harrison
Guide to Severance and Workforce Transition (2021) Infographic RiseSmart
2022 Severance Policies and Practices Report - U.S. Global Severance Policies and Practices Survey Report (2020) WTW
2021 Study of Executive Severance Arrangements Not Related to a Change in Control Comprehensive Study on Executive Change-in-Control Arrangements (2020) Market Trends in Change-in-Control Severance Arrangements - article Meridian Compensation Partners
Severance Agreements
NLRB Limits Nondisparagement Requirements in Severance Agreements SHRM | Feb 2023
Employers May Need to Update Their Severance Agreement Templates by April 1 Baker Hostetler | Mar 2021
Ripping off the Band-Aid: Considerations for Negotiating Employee Severance Obermayer | Apr 2019
PODCAST: Dos and Don'ts for Drafting Severance Agreements Ogletree Deakins | Aug 2018
VIDEO: Protect Your Company from Employee Backlash with Severance Agreements McNees Wallace & Nurick | Jul 2018
Conditioning Severance on Post Employment Obligations: Tricky Business Akerman | Jun 2018
Employers Should Be Aware of Pitfalls When Entering into Severance Agreements Nexsen Pruet | Jul 2017
Getting More Bang for Your Buck With Separation and Settlement Agreements Bryan Cave | Apr 2017
“Breaking Up Is Hard To Do”: But a Good Separation Agreement Can Ease the Pain DLA Piper | Feb 2017
Employment is Now-But is a Separation Agreement Still Forever? Stearns Weaver Miller | Oct 2016
SEC Cracks Down on Waivers in Severance Agreements SHRM | Aug 2016
Understanding Waivers of Discrimination Claims in Employee Severance Agreements EEOC
ERISA
Podcast: Severance Pay Plans & ERISA Proskauer | Feb 2018
Contemplating a Severance Plan? Consider ERISA Snell & Wilmer | Jun 2017
Does Your Severance Trigger ERISA? Why You Should Care and What You Should Do Foley & Lardner | Jul 2016
Tax Issues Severance Agreements – Three Tax Traps for the Unwary Foley & Lardner | Jun 2017
Here's How IRS Taxes Severance Pay Forbes | Sep 2017
Sample Policies and Forms
Severance Pay Policy SHRM
Reduction in Force Policy: Selection and Severance Pay SHRM
Severance Pay Policy New York University
Staff Severance Program Policy The Ohio State University
Severance Pay University of Hartford
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