Severance Pay Be Waived by the Employee

Companies that are forced to lay off employees in the wake of a downturn or company restructure often provide them with severance pay. Though they aren’t legally required to do so, it is a way for them to shield themselves from liability and defuse any hard feelings that would likely arise among those who remain in the workforce and those laid off.

Severance packages typically include some form of compensation for the terminated employee, as well as other perks. Compensation can include a regular paycheck for a specified period or a lump sum payment. It can also include unused vacation or sick time, company discounts or even the option to keep a company vehicle or equipment such as a phone.

The amount of severance pay is dependent on the company and the position, with those who are laid off as part of a mass layoff usually getting a higher payout than those in lower-ranked positions or whose employment ended at their own volition. Some employers also have a set formula they use when offering severance pay, with a week of pay for every year of service being a common severance package amount.

Can Severance Pay Be Waived by the Employee?

Depending on the employer, other severance package perks may include continued insurance coverage (including health and life), career consultation services such as resume writing or job placement, or additional perks such as an office space or contact forwarding courtesies. The severance package may also contain a waiver that waives the right to sue for various claims, including wrongful termination and discrimination.

As with all agreements and contracts, a severance pay retiring allowance should be carefully reviewed before signing to ensure it meets state and federal legal requirements. It should also be compared to the company’s severance package guidelines or those in the employee handbook. In addition, certain laws such as the Older Workers Benefit Protection Act set strict guidelines to ensure that any waiver an employer seeks from an older worker is knowingly and voluntarily executed.

One of the main goals an employer has when requiring an employee to waive their rights as part of a severance agreement is to insulate themselves from possible future lawsuits, especially those alleging discrimination or violations of a worker’s statutory rights. However, such waivers can be contested by an employee in a court of law and the EEOC recommends that any such waiver be drafted by a lawyer who specializes in workplace laws.

While the severance pay may be used to cover a gap in income, many departing employees want to use it for other purposes and a Northwestern Mutual financial advisor can help determine what might be most prudent in your situation. For example, you may wish to invest severance pay into your retirement savings plan or invest it in real estate. You can also use it to pay off debt or take a vacation before starting a new job. The severance pay may also be taxed, so consult your accountant or the Internal Revenue Service for specifics.