8 Benefits Employer and Employee Exchange for Severance

Severance pay is a matter of agreement between an employer and an employee. It is an agreement that the employer will provide a payment and/or benefits to an employee at the termination of employment. This agreement is usually called a severance agreement or a separation agreement. In the absence of a legislative mandate, employers are incentivized to make offers of severance packages generally in exchange for valuable promises from the employee which would otherwise not be enforceable for lack of consideration. These promises usually include the following top 8:

  1. Agreement not to litigate or sue the employer

  2. Release from certain employment contract terms

  3. Release from future potential legal claims or disputes

  4. Indemnity for tax and other liabilities

  5. Confidentiality of the agreement

  6. Non-competition with the employer’s business interests

  7. Non-solicitation of the employer’s customers, clients and employees

  8. Non-disclosure of company trade secrets and other valuable confidential company information

In the event that one is fortunate to receive severance pay, a company may require the employee to sign documents such as a release and waiver of claims, hold harmless or indemnity agreement, etc., before releasing severance pay.  It is important to note however that not all legal claims can be waived. For instance, any agreement which prevents an employee from participating in an Equal Employment Opportunity Commission (EEOC)  proceeding or a Security Exchange Commission (SEC) inquiry is void ab initio for illegality.

Although severance pay is usually based on length of employment, some companies are willing to negotiate the severance package with otherwise ineligible employees to include some otherwise unavailable benefits. Some of the benefits an employee would desire include these top 8:


  1. Cash

  2. Favorable payment terms and conditions, e.g a lump sum or annuity

  3. Health, medical, dental and vision benefits – note that pursuant to COBRA, which is a federal law that provides the employee the right to continue group health benefits otherwise terminated due to separation from the employer, employers must provide the employee an opportunity to continue coverage at their own cost; as part of a severance agreement, the employer can agree to pay these costs

  4. Retaining company equipment (such as a cellphone or computer)

  5. Forebearance from challenging an application for unemployment insurance benefits

  6. Provision of outplacement, resume and social media services

  7. Letter of recommendation and other reputation protection terms and conditions

  8. Pension rights (such as profit sharing and 401(k) plans), among several other benefits that would be case-specific

Neither of the above lists are exhaustive. In fact, what each party gives and takes is highly case-specific depending entirely on each party’s priorities and capacities. An employment attorney can assist in ensuring you, as an employer receive the greatest protection for your company through a severance agreement or that you, as an employee, maximizes the benefits payable to you for the dedicated service you’ve provided to an employer.