Are You Entitled to A Severance?

Broadly speaking, there are two types of employees who may be entitled to a severance payment. The first group of employees includes individuals who receive a severance because they have entered into a written agreement with their employer. The second group of employees are those who work for a company with a systematic plan or program providing for severance payments. Although there may be some overlap, an employee's right to a severance payment generally arises from an employer's contractual or statutory obligations.

Specifically, the availability of a contractual severance payment will depend upon the actual terms of the agreement and the circumstances surrounding the employee's separation from employment. For example, many executives have employment agreements providing for a severance if the executive's employment terminates "without cause" or for "good reason." These terms are usually defined in the agreement and often involve a change in the employer's corporate ownership, a diminishment of the executive's job duties or a required relocation. The entitlement to a contractual severance payment is determined on a case by case basis examining the facts underlying the executive's separation in light of the agreement's specified terms and definitions.

Other employees may be presented with a separation agreement at the time of their separation from employment. These agreements usually condition the payment of a severance in return for the release of all claims that an employee may have in connection with their employment. It should be noted that some employment related claims may survive the execution of a release. It depends on the nature of the claim and the manner in which the release was obtained.

As always, it is a good idea to consult with an attorney before signing any written agreements with your employer. You should be fully informed of your rights and obligations before making any contractual commitment. With respect to a separation agreement, an attorney can help you assess the merits of any potential claims you may be releasing before signing the agreement. In other words, an attorney can help you evaluate the risks and benefits of accepting or rejecting the severance offer. Finally, an attorney can advise you if there are any potentials claims that would not be extinguished by the release.

The second group of employees are eligible for a severance payment pursuant to the Employee Retirement Income Security Act, or ERISA, a federal law designed to protect employee benefits. ERISA protects severance payments made pursuant to a plan, fund or program established or maintained by an employer for the purpose of providing benefits to its participants. To qualify as an ERISA plan, severance benefits must be part of an "administrative scheme" which may be described in the employee handbook. Courts look at several factors to determine if a particular plan qualifies for ERISA protection. These include whether (i) there is a separate fund established for the payment of severance benefits; (ii) the employer has a procedure in place to determine the eligibility of claimants; and (iii) payment is made because of a one time event or each time an employee is terminated.

Your employer, or the plan administrator, has a duty to provide you with information about severance benefits governed by ERISA. It is best to retain an attorney to request the information on your behalf and help determine whether your employer's severance payment qualifies for ERISA protection.

Finally, even though you may not be entitled to a severance payment based on a written agreement or a federal law, you may still be able to negotiate a severance with your employer. One thing is sure, you won't know unless you try.