A severance package is a legal agreement between an employer and a departing employee. It typically offers compensation or benefits in exchange for the employee waiving the right to bring certain legal claims against the employer. Properly crafted, a severance package facilitates a smooth transition while reducing the risk of future legal disputes.
Whether downsizing, restructuring, or terminating an employee for performance or other business reasons, offering severance can help protect your business, maintain goodwill, and reduce the likelihood of litigation.
Are Center City Employers Required to Provide Severance Pay?
No. Pennsylvania employers (including those in Center City Philadelphia) are not legally required to provide severance pay unless:
- It is promised in a written employment contract;
- Required by a collective bargaining agreement; or
- Provided for in a documented company policy.
Still, many employers offer severance voluntarily to reduce legal risks (such as claims of discrimination, retaliation, or wrongful termination) and to help protect the company’s reputation during involuntary terminations.
How Is Severance Pay Calculated?
There is no statutory formula for severance pay in Pennsylvania. Employers have discretion in deciding how to calculate the amount. Factors to consider include:
- The employee’s length of service.
- Their job title and salary.
- Whether to include commissions or bonuses.
- Accrued but unused paid time off (though this is often governed separately).
- Whether benefits like health insurance or retirement contributions will continue.
- Whether the severance is paid as a lump sum or in installments.
Whatever method is chosen, terms should be clearly spelled out in the agreement to avoid misunderstandings or disputes.
What Is Included in a Severance Package?
A severance agreement often includes:
- Payment Terms: Amount and method (lump sum or periodic).
- Benefits Continuation: Whether COBRA premiums will be paid and for how long.
- Release of Claims: A legal waiver of the employee’s right to sue for issues related to their employment or termination. (Note: This must comply with federal laws, especially when the employee is over 40.)
- Non-Compete or Non-Solicitation Clauses: May restrict post-employment activity, though Pennsylvania courts scrutinize these closely.
- Non-Disparagement Clause: Prevents negative public statements about the employer.
- Confidentiality Clause: Protects trade secrets and sensitive internal information.
- Return of Company Property: Such as laptops, phones, and documents.
- Job Reference Provisions: May include terms for neutral references or assistance with job placement.
The agreement should also affirm that the employee was advised to consult legal counsel and is signing voluntarily.
How Long Do Employees Have to Review and Accept Severance Packages?
Timeframes depend on whether the Older Workers Benefit Protection Act (OWBPA) applies:
- Employees over 40 (individual terminations): Must be given at least 21 days to review.
- Employees over 40 (part of a group layoff): Must be given 45 days to consider.
- In both cases, employees must be given 7 days to revoke after signing.
Employees under 40 are not covered by the OWBPA, so there is no federal requirement, but best practices suggest giving a reasonable amount of time to review and consult an attorney.
What Are the Risks of Poorly Drafted Severance Agreements?
An incomplete or legally deficient severance agreement can backfire. Potential consequences include:
- Invalid Release of Claims: Especially under the OWBPA, if required disclosures are missing.
- Unenforceable Clauses: Pennsylvania courts often reject vague or overly broad non-compete or confidentiality clauses.
- Discrimination Claims: Unequal severance terms may appear retaliatory or discriminatory.
- Unclear Obligations: Poor drafting may result in unintended promises (e.g., extended benefits).
- Damage to Morale and Reputation: If the employee feels pressured or misled.
Even if an agreement seems routine, it is a binding legal document. Consulting legal counsel ensures that your business is protected.
Center City Severance Agreement Lawyers at The Gold Law Firm P.C. Help Employers Prepare Severance Packages
A well-drafted severance agreement is an investment in your company’s legal and financial stability. Avoiding shortcuts and working with experienced legal counsel ensures your agreements are enforceable and compliant with both Pennsylvania and federal law. If you need help preparing or reviewing a severance package, the Center City severance agreement lawyers at The Gold Law Firm P.C. are here to help. Call 215-569-1999 or contact us online to schedule a free consultation. We have offices in Philadelphia and Pennsauken, New Jersey, and we serve clients throughout South Jersey and Southeastern Pennsylvania, including Wilkes-Barre, Scranton, Northeast Philadelphia, Bucks County, Chester County, Delaware County, Lehigh County, Montgomery County, and Cherry Hill.
