What is Severance Pay?

Some employers may refer to any additional wages given to a former employee following their separation from employment as “severance pay.” Under the Texas Payday Law and prior state court rulings, severance pay is generally defined as additional compensation that the employer has obligated itself to make, either verbally or by putting it into writing. Severance pay is often based on a set formula, such as the employee’s length of prior service, however there are many factors that can influence the calculation of a severance amount.

Pros and Cons to Accepting Severance Pay

This extra compensation is only one part of a larger severance agreement, which may involve a release of claims, a covenant not to compete, and a requirement to maintain confidentiality. When presented with a severance agreement after termination, it’s important to understand that signing such an agreement almost always means that the employee is surrendering their right to sue the employer if they committed an illegal act during their employment or with regard to their firing. Because the legal language for releases and clauses within a severance agreement is complex and will often further restrict an employee’s ability to work within their field, it’s crucial for an employee to first understand what rights they are giving up, and then determine whether the severance pay amount they are set to receive is a commensurate exchange.

Can I go back on a severance agreement in Texas?

The Older Workers Benefit Protection Act (OWBPA) and the Age Discrimination in Employment Act (ADEA) provide additional protections to employees over the age of 40 with respect to severance agreements. Under the OWBPA, an older employee has up to 21 days to consider releasing any age discrimination claims before signing a severance agreement. In Texas, older employees also have up to 7 days to revoke a severance agreement from the day it was signed, if they indeed change their mind within this 7-day period. Negotiation is key with any severance package, as factors like being a highly compensated or long-serving employee may be strong indicators towards bargaining for a more favorable severance package. Recent protected activity (e.g., complaining of discrimination or harassment, making a “whistleblower complaint, taking a leave of absence protected under federal law, etc.) may likewise help an employee negotiate a better severance package.

What to do if offered a Severance Package?

Like any other workplace contract, it is highly advisable to have an employment attorney review a severance agreement before it is signed by an employee. A legal expert can assess whether a severance agreement is a good deal by weighing the value of claims being waived with the amount of pay being offered by the employer. While certain rights cannot be waived as a matter of law, severance agreements that meet basic criteria are mostly enforceable in Texas. Depending on the type of severance pay provided by an employer, the employee may temporarily be ineligible for unemployment benefits while they are receiving severance payments. Employers will often signal that time is of the essence when presenting a severance agreement, but it’s ideal for an employee to not sign it right away and instead consult with a skilled employment attorney for guidance.

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