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The Difference Between Termination Pay and Severance Pay

What is the difference between termination pay and severance pay?

These terms have distinct meanings, so we prefer not to use them interchangeably though many do. We’ll show why American law sticks with the term “severance” rather than “termination.” Finally, we’ll explain why you should hire an attorney, like Rowdy Meeks Legal Group LLC, before signing an employment contract with a severance package.

Severance Pay Defined

Severance pay refers to compensation an employee receives upon termination from a company. Normally, the termination results from layoff where the employer is eliminating jobs and not replacing them.

No federal or state law requires employers offer employees severance pay upon termination. This means that federal and state law do not require employers to offer any severance pay to laid off employees. Employers who do offer severance pay do so pursuant to policy and procedure, or a written employment agreement with the employee. Employers offer severance pay in exchange for the employee’s full release of all employment-related claims and the employee’s agreement never to sue the employer. This is why employees must fully understand any employment-related claims they may have against the employer and the true value of any severance pay.

Employees generally use severance pay to bridge the gap between when their job ends to them obtaining a new job. Each employer which offers severance pay generally has a standard formula for computing severance pay. The typical severance formula ranges from one to four weeks pay multiplied by the number of years the employee worked for the company.

What is Termination Pay Then?

We normally don’t use this term in United States employment law. Termination pay is much more common outside of the United States including in Canada. In those countries, the law distinguishes between the pay you receive upon termination (even for poor job performance) versus severance money, which relates to job eliminations and layoffs.

Other Important Things to Know About Severance Pay

There are a few other facts you need to know about severance packages. One reason this topic has the potential for confusion and conflict is that it’s possible to lose severance money after you’ve left the company.

Yes, certain actions can cause you to forfeit separation pay. The severance agreement and/or the employer’s severance policy contains the requirements to which employees must comply to continue to receive severance. Normal disqualifiers include:

  • Violating a non-compete agreement (either during or after employment with the company).
  • Not returning company property following departure.
  • Making negative comments about the company following departure.
  • Revealing company secrets.

Why You Need a Lawyer to Prevent Misunderstanding Violations

Many employees don’t understand all severance pay requirements until after they’ve left the employer. Employees must fully understand all severance pay requirements or they run the risk of forfeiting much needed pay.

We recommend that employees ALWAYS hire a lawyer whenever they have employment-related claims of any kind including severance pay.

Rowdy Meeks Legal Group LLC: A Trusted Advocate for Anyone Fighting to Recover a Severance Package

Rowdy Meeks Legal Group LLC represents employees nationwide in unpaid wage claims including severance pay. We regularly review employee severance packages and educate employees that they have unpaid wages claims like unpaid overtime which are worth far more than the employer’s opening severance pay offer. We can then negotiate a much better severance pay package or file the unpaid wages claim.

So, contact us today to learn more about any unpaid wages claim including severance pay, and how to make sure you obtain everything you deserve.