Severance Agreement: Upsides and Downsides

Leaving your job or getting fired is just like a relationship ending, it could be amicable and it could also be a disaster. Either way, losing your employment is never easy but there are some ways which can ease the blow. Severance pay agreements are like a nice “thank you” package of benefits from employers which will be given to an eligible employee.

Some of the benefits included in a severance package include:

• Employee’s remaining regular pay
• Additional payment based on months of service
• Payment for unused vacation time and sick leave
• Medical, dental or life insurance
• Retirement benefits
• Stock options
• Assistance for searching for new work

While there is no requirement under the Fair Labor Standards Act (FLSA) to provide severance pay to an employee upon the termination of his/her employment, a severance agreement can be validly entered into by the employer and the employee (or the union or representative).

Employment Contract Should Include Severance Terms

A severance agreement or contract specifies the terms of employment termination such as company downsizing or retirement, it may be found in an employment contract while some severance package policies are found in the company’s employee manual.
While generally, severance packages are offered to employees who become unemployed through no fault of their own, this may also be offered to employees who resign or are fired.

Signing a severance agreement however, would prevent or preclude the employee from suing his/her employer for wrongful termination or unemployment insurance.

While a severance package can seem like a thank you gift, it can also be considered as a legal bribe. It is valid so long as:

A severance agreement, wherein the employer forced the employee to sign in order to avoid paying unemployment insurance or where the employee was threatened to sign or risk losing his last pay is null and void.

For many employees, receiving severance pay may be a welcome supplement to their finances or a nice parting gift from the employer. But they should consider what they will be giving up if they decide to adhere to a severance agreement.

Additional benefits are always good but it shouldn’t come at the expense of violating an employee’s rights. Should an employee have been coerced to sign a severance agreement detrimental to his rights, litigation can still be pursued to rectify the employer’s wrong doing.

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More information: Severance Package Agreement