When an employee is eliminated from his or her position, an employer may offer a severance package, also known as a severance agreement. In general, these packages include financial compensation in exchange for an agreement to not bring a legal action against the organization. If no agreement is put in place or the employee does not agree to the package, there is nothing that prevents them from filing suit against their previous employer for wrongful termination or similar claims.
There are no state or federal laws that govern how a severance package should be set up, so it is up to the employee and employer to determine the terms of an agreement. However, it is common for severance pay and associated benefits to be based on how long an individual was with the company and the company’s current financial situation.
Before agreeing to a severance package, individuals should make sure that their compensation is appropriate because they will be releasing all claims on the company. It may also be a good idea to have the package including wording that protects the individual from future claims by the company against the employee for wrongful behavior or harassment.
If someone finds that they are being let go by their employer due to downsizing or a merger, they may be offered a severance package that limits their ability to pursue legal action against the organization. Some severance packages also include noncompete agreements that may limit where individuals can find employment. An employment law attorney can review the terms and explain its contents as well as ensuring that it is fair.
Source: Findlaw, “Severance Packages: Are Benefits, Severance Pay on the Table?“, September 08, 2014