Severance

Severance pay is compensation provided to employees upon involuntary termination : typically a lump sum or salary continuation payment in exchange for a signed separation agreement releasing legal claims against the employer. It is not legally required in the US (the FLSA does not mandate severance), but it is a widespread practice driven by: litigation risk reduction, organizational values, competitive norms, and in some cases contractual obligations.

Common severance formulas: 1-2 weeks of base salary per year of service (most common for non-executive employees), capped at 26-52 weeks maximum; minimum payment of 2-4 weeks regardless of tenure (ensures even short-tenured employees receive meaningful support); executive agreements often specify 6-24 months of base salary plus acceleration of equity vesting. Formulas vary by industry, company size, and role level : benchmark against competitors to ensure the package supports recruitment and retention of candidates who will consider separation terms.

Key legal requirements: severance in exchange for a release of ADEA claims (age discrimination) for workers 40+ requires: at least 21 days to consider the agreement (45 days for group terminations), 7 days to revoke after signing, the release must explicitly mention ADEA, and employees must be advised to consult an attorney. For group terminations, the employer must provide information about the job titles and ages of all selected and non-selected employees. Releases of Title VII and other claims don’t have the same specific requirements but must be knowing and voluntary.

Standard separation agreement components: severance amount and payment schedule, benefits continuation (COBRA subsidy, period of extended coverage), outplacement services, equity treatment (vesting acceleration or forfeiture), non-disparagement clauses (mutual or one-way), reference letter commitment, confidentiality of agreement terms, release of all known and unknown claims against the employer, rehire eligibility statement, and for ADEA compliance : 21/45-day consideration period and 7-day revocation right for workers 40+.

Yes : severance in exchange for an NDA is permissible but faces growing restrictions. The SPEAK OUT Act (2022) limits enforcement of pre-dispute NDAs for sexual harassment and assault. Many states (CA, NY, IL, WA) restrict NDAs in harassment/discrimination settlement contexts : employees cannot be required to keep the facts of harassment claims confidential as a condition of receiving severance. Carefully review state law before requiring harassment-related NDAs in any severance agreement.

The WARN Act requires 60 days advance written notice before covered mass layoffs (50+ employees at a single site) or plant closings. If the employer fails to provide proper WARN notice, it must pay employees: back pay for the period of WARN violation (up to 60 days), benefits for that period, and a civil penalty of $500/day to local government for each day of violation. WARN liability effectively creates a minimum ‘severance’ for mass layoffs even though severance itself isn’t legally mandated. Many employers structure severance and WARN notice together for mass events.