This FAQ is only intended as an informative guide to common severance-related questions and is not legal advice. Each severance situation is different and requires independent review and analysis. At Cantrell Zwetsch, our Florida severance attorneys routinely handle severance agreement matters, including drafting, negotiating, and resolving disputes.
- Are Employers Required to Provide Severance Agreements?
No, employers are generally not required to provide severance pay. As reiterated by the DOL, the Fair Labor Standards Act (i.e., the federal law governing minimum wage and overtime) does not require that employers pay severance. If, however, an employer implemented an ERISA-governed employee benefits plan that provides severance pay, then the employer is required to comply with the terms of that severance plan.
- Under What Circumstances Do Employers Provide Severance?
Companies regularly ask employees and contract workers to sign severance agreements. Severance agreements are often provided to mitigate exposure by avoiding potential disputes or resolving actual disputes, as well as to maintain general good-will with a prior employee or contract worker. To achieve that, companies generally offer severance pay as part of a severance agreement, in exchange for certain promises such as a release of claims. The amount of severance pay and any other benefits offered vary from company to company. Factors companies sometimes consider in determining the amount of severance pay to offer include: length of employment, the employee’s position, the company’s size and financial health, and the circumstances surrounding the individual’s separation.
- What terms are generally in a severance agreement?
The most common two provisions include (i) a compensation provision that details the amount, timing, and tax repercussions of the severance pay, and (ii) a release of claims provision that details the scope of the legal claims released by the individual. Examples of additional terms that are often included are: provisions concerning no-rehire, confidentiality, return of company property, non-disparagement, non-admission of liability by the company, and, in the event of a dispute, details concerning venue, choice of law, and attorneys’ fees. The specific provisions and the details of such provisions can vary significantly and should be carefully considered.
- Should an Employee Try to Negotiate Severance Pay?
It depends. Whether or not the offered severance pay should be accepted depends on a number of factors, including but not limited to: (i) whether an individual has valid legal claims and the monetary value of any such claims; and (ii) whether the severance agreement includes burdensome obligations, such as non-disparagement provisions or non-compete or non-solicit provisions. Most individuals do not know if they have a legal claim in the first instance and do not fully appreciate certain obligations contained in severance agreements. We help individuals determine if the pros of signing a severance agreement outweigh the cons, in addition to negotiating the terms and compensation within those agreements.
- Can an Employer Limit the Amount of Time to Sign a Severance Agreement?
Yes. Like any other contract, a company can limit the amount of time an individual has to accept the offer. While agreements signed under duress are not enforceable, only giving an employee or contractor a few business days to accept a severance agreement is not sufficient to demonstrate duress.
As a caveat, if an employer wants an employee who is age 40 or older to release claims under the Age Discrimination in Employment Act, as amended by the Older Workers Benefit Protection Act (OWBPA), then the employee must be given at least 21 days to consider the offer. And, in a group termination, employees age 40 or older must be given 45 days. The OWBPA also requires that such employees be given at least seven (7) days to revoke their waivers of age claims after they sign the agreement.
- Is Severance Pay Taxable?
Whether severance pay is taxable depends on (i) if the pay is categorized as wages or non-wages, and (ii) if the IRS agrees with that categorization. According to the IRS, severance paid as wages is taxable in the year in which it is received. The payroll taxes for severance categorized as wages include income taxes, federal income tax (FUTA), Social Security tax, and Medicare tax. If part or all of the severance pay is categorized as non-wages, then it is generally not taxable. The IRS, however, may contest a non-wage categorization of severance pay.
- What Should You Do When an Employer Provides You a Severance Agreement to Sign?
When you are asked to sign a severance agreement, speak with an employment attorney. The cost involved is generally far less than the amount of severance offered. Regardless, at Cantrell Zwetsch, we help individuals understand all important provisions in a severance agreement. We also help you ensure no unusual or unacceptable terms are included, such as restrictive covenants. When negotiating additional severance pay and/or eliminating or adding certain provisions is recommended, we negotiate on your behalf or assist you behind the scenes, depending on which approach is more strategically beneficial.
About Cantrell Zwetsch
Cantrell Zwetsch is a premier litigation boutique focusing on non-compete and unfair competition disputes, employment law, and business disputes. We limit the number of clients we represent at any given time in lawsuits, and we focus on the firm’s core competencies. The firm’s clients range from Fortune 500 companies and middle-market and high growth companies to entrepreneurs and individuals. We have substantial experience across many industries, including insurance, healthcare, automotive, manufacturing, technology, and staffing/recruiting. Our attorneys hail from top law schools and have graduated near the top of their classes. Each of our attorneys are committed to working tirelessly on behalf of our clients, striving for an effective and efficient outcome. We are glad to share references. If you are considering a severance lawyer in Florida or Georgia, consider Cantrell Zwetsch.
You can contact the firm at 813-867-0115 or at firstname.lastname@example.org.