HR Practice Pointer: Is Severance Pay Required?

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Published on Wednesday, 14 September 2011 03:29

There is no general statutory or common law obligation for an employer to provide severance pay to an employee. However, where it is provided by the employer, it must be administered in a non-discriminatory manner and should comply with any applicable labor agreement, employee handbook, policy manual or any other relevant employer document. In certain situations, employers may provide severance pay in exchange for a release of claims the employee may have against the employer. A properly drafted severance agreement will release the employer from claims such as wrongful termination, discrimination, harassment and/or retaliation. All such severance agreements should be reviewed (and/or drafted) by an employment law attorney. In general, severance agreements should be clearly worded, specifically identify the claims being released, be supported by adequate consideration and, as indicated above, be reviewed by counsel for the employer and employee. Civil Code section 1542 provides that a general release does not extend to claims which the creditor does not know or suspect to exist, although a severance agreement can contain a waiver of this provision. A waiver of claims regarding age discrimination contained in a severance agreement must comply with the Age Discrimination Act (ADEA) which requires, in part, that the waiver specify the rights being waived under the ADEA, that the employee was advised in writing to consult an attorney, that the employee was afforded at least 21 days in which to considered the agreement, and that the agreement provides for a seven day period following execution of the agreement in which the employee may revoke the agreement. Read more.