Losing a job can be stressful enough without having to navigate confusing legal documents on your own. If your employer offers you a severance package, it may seem like you need to sign quickly to get the benefits, but this could cost you in the long run. Before putting pen to paper, there are some things you should consider.
What Is a Severance Package?
A severance package is a set of benefits, including pay, health coverage, and other perks that an employer offers to an employee when they leave the company. This can happen due to layoffs, restructuring, or termination.
Here’s a critical fact that most workers may not be aware of: under federal law, employers are not generally required to provide severance pay. There is no federal legislation mandating severance payments, and Kentucky follows this same rule under its at-will employment doctrine. Instead, severance is typically provided as a business decision or in exchange for something from the employee, such as a waiver of legal claims.
What Does a Severance Package Usually Include?
Packages vary widely depending on your employment, your position, and the circumstances of your separation. Common components may include:
- A one-time payment or continued salary for a specified period (often one to two weeks for each year of service)
- Continued health insurance coverage, sometimes subject to COBRA rights under federal law
- Early vesting of stock options or pension benefits
- Career counseling or outplacement services
- A confidentiality or non-disparagement agreement
- Release of legal claims against the company
The Release of Claims: Read This Carefully
The most important part of the process is the release of claims. When you sign a severance agreement, your employer will almost always ask you to waive your right to sue them – including for discrimination, harassment, wrongful termination, or wage violations. After signing, this waiver is usually binding.
If you are 40 years old or older, federal law provides special protections for older workers under the Older Workers Benefit Protection Act (OWBPA). Under this law, your employer must give you a minimum of 21 days to review the agreement and seven days to withdraw from it after signing. These rights cannot be waived by either party.
Can You Negotiate Your Severance?
Yes, and you often have more power than you might think. Employers often present severance packages as “standard” or “take it or leave it”, but this framing benefits them and not you. Negotiation is not only possible, it’s common.
Consider these points for negotiation:
- Increase the total payout, especially if you have a long tenure or excellent performance.
- Extend health coverage beyond the initial offer.
- Remove or modify overly broad non-competition or non-solicitation clauses that may conflict with Kentucky’s reasonable standards for restrictive agreements.
- Negotiate the terms of your departure, including whether it is a resignation or termination, as it may affect your unemployment benefits.
- Request a neutral or positive reference from your current employer.
If your employer is planning to lay off 100 or more employees at once, the federal WARN Act may require them to provide 60 days’ notice in advance – or compensation instead of that notice. Failing to comply with this requirement significantly strengthens your bargaining position.
When Should You Talk to an Attorney?
You should consult with an employment attorney before signing any severance agreement, especially if you believe that your termination was based on discrimination, retaliation, or related to your whistleblowing activities. Signing a document without fully understanding the implications can result in losing valuable rights and benefits, which may be worth more than the proposed severance package.
An attorney can help you determine whether your release is legally binding, identify claims that you may not be aware of, and negotiate on your behalf with your employer. Filing a charge with the Equal Employment Opportunity Commission (EEOC) before signing the release may also help protect your rights that could otherwise be lost.
Don’t Sign Until You Know What You’re Giving Up
At Abney Law, our employment attorneys in Louisville have recovered millions of dollars for Kentucky workers through legal actions, including verdicts, settlements, and advocacy at the legislative level. We will review your severance agreement and work to ensure that you receive the full value of your rights. If you would like to discuss your case with one of our attorneys, please schedule a consultation.