Severance Policy

A Severance Policy is a guideline that regulates the benefits offered by an employer to an employee who is being terminated from their job with the company. These benefits, all together, are known as severance.

Severance is the compensation or benefits that an employee receives when their employment is terminated, typically due to reasons beyond their control, such as downsizing or restructuring.

Establishing a clear and well-thought-out Severance Policy is important for both employers and employees. A well-defined policy provides an outline describing what benefits are being offered and how employees can take advantage of them. This ensures that severance is handled consistently and fairly for all employees working for the employer. This also helps the employer stay compliant with any related employment laws or regulations that address termination and severance, helping to protect the employer from misunderstandings or future disputes.

This document should be used by an employer who wants to create an internal policy for use by the company, rather than a policy that has been negotiated for by a workers' union. If a union wishes to negotiate a policy with an employer, the parties should use a Collective Bargaining Agreement for this purpose.

This website offers many different documents related to employee policies. For example, employers can use this website to create a Vacation and Leave Policy, that covers general leave for employees, or a Maternity and Parental Leave Policy, which is used for the specific purpose of regulating leave related to employees adding a new child to their family. An employer creating this policy might also wish to create or update relevant related policies, such as the Employee Handbook, which compiles all the employer's policies in one place.

How to use this document

This Severance Policy document is a comprehensive resource and includes everything an employer needs to create a customized severance policy for employees in numerous circumstances. In addition to outlining details about the employer and who, if anyone, has been selected to administrate this policy, this policy allows the employer to customize the following components:

• Eligibility Criteria: This policy addresses which employees will be eligible to use this benefit. An employer might require a certain number of years of consecutive service and/or that the employee be employed in a particular role to be eligible to receive severance upon their termination.
• Severance Package Benefits: This policy includes an outline of what benefits will be offered in a severance package to eligible employees. The employer can offer both monetary benefits, such as a lump sum payment or prorated commission pay, as well as non-monetary benefits, such as the continuation of health insurance or wellness benefits for a period of time.
• Non-Disparagement and Confidentiality Agreements: Employers are able to add a clause to the Policy that requires employees to agree not to publicly criticize the company or its employees, as well as keep information about their severance package confidential in exchange for receiving severance.

After developing the severance policy, the employer should be sure to provide employees with a copy and have them sign and date the policy. It is also best practice to update the Employee Handbook, if one exists, to include verbiage about the policy. If desired, the employer can also document the employees' acknowledgement of the policy in their personnel files once they are returned.

Applicable law

This Severance Policy document is subject to several applicable federal laws, as well as assorted state and local laws. The Worker Adjustment and Retraining Notification (WARN) Act is a federal law that requires employers in specific industries to provide notice before any planned plant closures or mass layoffs. This is to ensure that employees have time to seek alternative employment or training opportunities. The Fair Labor Standards Act (FLSA) may impact the payment of wages, bonuses, and other compensation components outlined in the severance package. The Age Discrimination in Employment Act (ADEA) prohibits age discrimination against employees over the age of 40 and may impact severance benefits provided. Consideration of state and local employment laws is also crucial, as these may vary and add additional requirements to the severance process.

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