HR Tip of the Month: Understand The Benefits of Severance Pay, The Law And How To Do It Right


Generally speaking, the law does not require payment of severance to a terminated employee unless the employer has contractually agreed to do so through some form of agreement or policy. As a result, some employers may question why they should offer severance pay. The most common answer is that the severance pay is conditioned upon the terminated employee providing a release of claims. Therefore, an offer of severance can be a cost-effective means for an employer to avoid the time, expense, disruptions and uncertainties that come with a lawsuit or threatened lawsuit. However, the request for a release of claims will trigger certain legal requirements and obligations. For example, under the federal age discrimination law, employees that are 40 years of age or older must be provided 21 days (and sometimes as much as 45 days) to accept the severance offer and 7 days to revoke their acceptance of said offer. Other laws may limit the employee’s ability to release certain claims. Employers should consult with their counsel to insure their severance agreements are legally compliant and to insure that they fully understand the impact of the law on said agreements.