Do I Have To Accept a Severance Package?

Some employers offer severance to employees who are laid off or otherwise lose their jobs through no fault of their own. For example, a company that downsizes may offer severance to all employees who are terminated.

Employees are under no obligation to accept the severance an employer offers, or to sign the agreement that usually accompanies a severance package.

However, in most cases, an employer is free to condition severance on the employee signing the agreement. In other words, if the employee refuses to sign, the employee won't get any severance pay.

What is a Severance Package?

A severance package is some combination of money and other benefits and items provided to an employee upon leaving a company. Severance most commonly includes pay, but it can also include benefits continuation, outplacement assistance, and other things.

Except in a few states, which require employers who conduct a large-scale layoff or plant closing to pay severance to workers who lose their jobs, severance is generally not required by law.

An employer is generally free to lay off employees and pay them nothing beyond their final paycheck. However, some employers voluntarily provide severance, either by contract, by policy, or by longstanding practice.

Will I Have to Sign a Release of Claims to Get Severance Pay?

Many employers condition severance pay on the employee signing a release: an agreement not to sue the employer for claims arising out of the employment relationship. (For more on releases, see If I Accept a Severance Package, Can I Still Sue for Wrongful Termination?) In other words, if you want severance pay, you'll have to sign the release.

However, an employer can't require you to sign a release if you are already legally entitled to severance pay. A release is a contract. In exchange for your agreement to give up a valuable right (to sue your employer), the employer must provide something valuable to you. If you would not otherwise be entitled to severance, the severance package your employer offers is the value you get for signing the agreement.

If, however, you are already entitled to severance, you are entitled to something more. For example, if state law gives you the right to a certain amount of severance, or if your employer has a policy of giving one week of severance for every year of service to all employees, you can't be required to give up rights in exchange.

To get around this problem, some employers offer enhanced severance (more money) to employees who sign a release, and a lower standard amount to everyone else.

Do You Have to Accept a Severance Package?

The short answer is no. You don't have to accept what your employer offers, nor do you have to sign a release. A release is valid only if it's voluntary: If your employer requires or coerces you sign, it won't be upheld in court.

This doesn't mean, however, that you are entitled to severance. As explained above, most employers are legally free to pay severance only to employees who sign a release.

What to Consider Before Signing a Severance Agreement

Whether to accept a severance agreement is always up to the employee. Here are few things to consider before you sign a severance agreement.

• Are you satisfied with the amount of severance? As with other forms of compensation, severance pay is negotiable. Don't feel that the offer from your employer is necessarily take-it-or-leave-it. If you're in a good bargaining position (for example, you have potential claims against your employer), you might be able to make the case for additional severance pay.
• Are you willing to sign a release of claims? Severance agreements often include a release of claims in which you agree not to sue your employer for certain claims, such as wrongful termination or discrimination. Make sure you understand what rights you are giving up before signing the agreement.
• Does it contain a confidentiality or non-disparagement clause? Many severance agreements include confidentiality and non-disparagement clauses. Confidentiality clauses generally prohibit you from disclosing certain information about your employer, such as trade secrets or other sensitive information. Non-disparagement clauses typically prohibit you from making negative statements about your employer.
• Does it contain a non-compete or non-solicitation clause? If the severance agreement contains a term that restricts your ability to work for competitors or solicit clients, think long and hard before agreeing to it.

When to Seek Legal Help

If you are asked to sign a severance agreement that includes a release, it's a good idea to consult with an employment lawyer. Before you give up the right to sue, you should make sure you don't have valuable legal claims you are waiving. If a lawyer believes you might have grounds for a lawsuit against your employer, the lawyer can try to negotiate a better package for you.