• In most cases, severance pay to employees upon termination is at the discretion of the employer.
• Employers should seek legal counsel regarding the terms of potential severance packages.

Severance pay is often granted to employees upon termination (if terminated for reasons other than a person’s own misconduct) and is frequently based on length of employment. There is no severance pay requirement in either federal or state laws. As a result, the amount and whether it will be paid is left to the discretion of the employer unless there is a promise or agreement to do so.

Some employers choose to offer severance to all employees as a gesture of good will, in hopes that the employee will be discouraged from filing a lawsuit (perhaps a frivolous suit). The major benefit to a severance agreement, however, is to save costs associated with litigation, discrimination claims, and so on. Employees are often happy to take the guaranteed severance package over the potential settlement in litigation, where the outcome is not guaranteed and there are attorney fees.

Most employers try to get something in return (like a release of all claims against the company) when providing a severance package. If the company doesn’t get such a release, the severance offer may be used in litigation as evidence of guilt, or may be used to subsidize the employee’s litigation costs. For example, if an employee is terminated and has been thinking of filing a discrimination claim, the offer of severance pay might be rejected, and the attempt to obtain a waiver might be presented by the employee as an attempt to “silence” the employee. For these reasons, employers should consult with legal counsel before offering a severance package.

There is no guideline on how much to offer. Employers commonly offer one or two weeks’ salary for each year of employment, but may offer more or less depending on the situation. A severance package may also include benefits other than direct payments, such as subsidized Consolidated Omnibus Budget Reconciliation Act (COBRA) coverage for several months.

Severance pay may be subject to the Employee Retirement Income Security Act of 1974 (ERISA) depending upon terms and conditions. As a voluntary benefit, however, employers are not required to offer a severance package. Often, severance is offered as part of a waiver of age discrimination claims under the Older Workers Benefit Protection Act. These waivers are legal documents and should be drafted by an attorney.