Are Companies Required to Offer Severance?

The federal WARN Act applies to employers with 100 or more full-time employees and requires 60 days' advance written notice before:

• A plant closing affecting 50 or more employees at a single site
• A mass layoff affecting either:
  • 500 or more employees, or
  • 50-499 employees if they make up at least 33% of the workforce at a single site

Important: The WARN Act requires notice, not severance. If an employer fails to give the required 60-day notice, they must pay employees for each day of the violation, up to 60 days of back pay and benefits. This payment compensates for lack of notice—it's not technically severance, though it can amount to significant compensation.

Many states have their own "mini-WARN" acts with different thresholds and requirements. For example:

• California: Covers employers with 75+ employees, requires notice for layoffs of 50+ employees (no percentage threshold)
• New York: Requires 90 days' notice (not 60) and covers employers with 50+ full-time employees
• Illinois, Maryland, Massachusetts, and others: Have their own variations with different employee thresholds and notice periods

These state laws generally require advance notice, not severance pay—with one major exception.

New Jersey stands alone as the only state that mandates severance pay for covered layoffs. Under the New Jersey WARN Act (officially the Millville Dallas Airmotive Plant Job Loss Notification Act), as amended in 2023:

Employers must pay severance of one week of pay for each year of employment to all employees affected by:

• Mass layoffs (50+ employees within 30 days)
• Plant closings or relocations
• Termination of operations

This severance is required even if the employer provides the full 90-day notice that New Jersey law requires. If the employer fails to give proper 90-day notice, employees receive an additional four weeks of severance pay as a penalty.

Key aspects of New Jersey's law:

• Applies to employers with 100+ employees nationwide if they've operated in New Jersey for 3+ years
• Severance is calculated using the higher of: average compensation over the last three years OR final rate of compensation
• Employees cannot waive their right to this severance without state or court approval
• The severance is automatic and separate from any other severance an employee might receive

If you work in New Jersey and are facing a covered layoff, this law gives you strong protections. For workers in other states, however, no such universal severance mandate exists.

If you signed an employment contract that includes severance terms, your employer is legally bound to those terms. This is most common for:

• Executive and senior leadership positions
• Specialized technical or scientific roles
• Some sales positions with compensation agreements
• Employees who negotiated severance terms at hiring

Check your employment agreement. If severance is specified, you have a legal right to what's promised—this isn't negotiable, it's contractually required.

If you're represented by a union, your collective bargaining agreement (CBA) may require severance pay. Union contracts often include:

• Specific severance formulas (e.g., 2 weeks per year of service)
• Enhanced severance for certain types of layoffs
• Minimum severance amounts regardless of tenure
• Protection from waiving severance rights

Union members should review their CBA or contact their union representative to understand their severance rights.

Some companies establish severance policies through:

• Written severance policies in employee handbooks
• Documented past practices of providing severance
• Formal severance plans under ERISA (Employee Retirement Income Security Act)

Courts have found that consistent company practices can create enforceable obligations, even without a written contract. If your company has historically provided severance in similar situations, you may have grounds to expect the same treatment.

If your employer has consistently provided severance in similar layoffs or terminations, this "established practice" may create a legal obligation. For example:

• If everyone laid off in the past three restructurings received 2 weeks per year of service, you can expect the same
• If similarly positioned colleagues received severance, denying you the same treatment could be discriminatory

This is especially relevant if you can document that your employer has followed a consistent severance formula or pattern.

The primary reason companies offer severance is to get you to sign a release waiving your right to sue. This release typically covers:

• Wrongful termination claims
• Discrimination (age, gender, race, disability)
• Harassment or hostile work environment
• Wage and hour violations
• Any other employment-related claims

Important: If you're 40 or older, special federal rules apply. The Older Workers Benefit Protection Act (OWBPA) requires that:

• You receive at least 21 days to consider the agreement (45 days if part of a group layoff)
• You have 7 days after signing to revoke your acceptance
• The agreement must be written in clear, understandable language
• You must be advised to consult with an attorney

The value of this release to the company is often worth far more than the severance they're offering. This gives you negotiation power.

Companies care about how they're perceived by:

• Remaining employees who watch how departing colleagues are treated
• Future job candidates who research company reviews
• Customers and business partners
• The media and public, especially for public companies

Treating laid-off employees poorly damages employer brand and makes future hiring more difficult and expensive.

Current employees who see coworkers laid off with no support worry about their own futures. Companies offer severance to:

• Maintain productivity among remaining staff
• Reduce anxiety and distraction
• Demonstrate that the company "takes care of its people"
• Avoid a mass exodus of top talent

In some industries and for certain positions, severance has become expected:

• Technology companies often provide generous severance
• Financial services typically offer standard formulas
• Consulting firms usually provide outplacement services
• Executive positions almost always include severance

Companies that deviate from industry norms risk reputation damage and difficulty attracting talent.

Since severance is voluntary (in most cases), the company is choosing to offer it for strategic reasons. This means:

• The first offer is just an opening position. Companies expect negotiation, especially for mid-level and senior employees.
• Their concerns create your leverage. If they're worried about litigation risk, bad publicity, or employee morale, you have bargaining power.
• Nothing is set in stone. Unless you signed a contract specifying severance terms, everything is negotiable.

When a company asks you to sign a release of claims, you're giving up valuable legal rights. Consider:

• The cost of defending against an employment lawsuit can easily exceed $50,000-$100,000
• Settlement or judgment amounts in employment cases can be substantial
• Age discrimination claims, in particular, concern employers

If the severance you're offered seems low relative to what you're waiving, that's a strong argument for negotiation.

Remember these timeline protections:

• Employers must give you at least 21 days to consider any agreement that includes a release of claims, and 7 days after signing to revoke your acceptance (if you're 40+)
• You can use this time to have an attorney review the agreement
• Don't let anyone pressure you to sign "right away"

If you're 40 or older, the OWBPA provides extra protections. If you suspect age discrimination in your layoff:

• Document any evidence (younger workers retained, age-related comments, etc.)
• The potential for an age discrimination claim increases your negotiation leverage
• Employers are often willing to improve severance to avoid age discrimination litigation

If you have a disability, employers may have obligations under the Americans with Disabilities Act (ADA) that affect your termination. However:

• The ADA doesn't require severance
• It does require reasonable accommodation during employment
• Terminating a disabled employee without proper accommodation process creates legal risk

If you were recently on (or requested) Family and Medical Leave Act (FMLA) leave:

• Employers cannot retaliate for taking FMLA leave
• Timing of a layoff immediately after FMLA leave raises questions
• This creates additional leverage in severance negotiations

If you reported illegal activity, safety violations, or participated in an investigation:

• Multiple federal and state laws protect whistleblowers from retaliation
• A layoff soon after protected activity creates legal risk for the employer
• This substantially increases your negotiation leverage

Note: If any of these special circumstances apply to you, consider consulting with an employment attorney before accepting any severance offer.

Here's what matters most: Since most severance isn't legally required, what you get is largely up to negotiation. This isn't about entitlement—it's about leverage and strategy.

Companies offer severance because it serves their interests: avoiding lawsuits, protecting reputation, maintaining morale. Understanding this helps you negotiate from a position of knowledge rather than need.

The fact that severance usually isn't required doesn't make it less real or less deserved. It just means you need to understand the game you're playing and use the leverage you have.