Termination Timing When Providing Severance Pay

September 18, 2017

Topics: Terminating Employees

Offering to pay an employee severance pay after their employment is terminated does not change an employee’s termination date—despite some employees believing that their employment continues while they consider the severance agreement.  When an employer says it is “time to part ways,” that employee’s employment is over.

If an employee is offered severance pay when his or her employment is terminated, the employee should be given a severance agreement to sign prior to receiving the severance.  The agreement sets forth both the employer’s and employee’s obligations, and is generally something your employment lawyer would help you draft.  Usually, in exchange for agreeing to certain provisions (such as the employee promising not to sue the company, not to reveal company confidences, not to disparage the company, not to poach employees etc.), the company agrees to provide certain severance payments, and/or agrees to continue to pay health insurance premiums for some amount of time, and/or potentially makes other agreements in the employee’s favor.  The company must offer something of value as “consideration” (exchange) in order for the employee’s promises to be enforceable in a court of law.

The agreement spelling out these arrangements is generally provided to the employee during the termination meeting, or shortly thereafter.  And the employee is then going to have time to consider the arrangement and decide whether to accept it.

It is important to make clear to the employee, however, that without regard to whether the employee yet has a copy of the severance agreement, or has yet accepted it, the employee’s employment is terminated as of that termination meeting.  The time the employee has to consider whether to accept the severance arrangement does not extend the time the employee is employed.

There are times when an employer might want to provide employees with notice that their employment will be terminated in the future.  This is most applicable in layoff/downsizing situations.  But in most cases (and even some layoff situations), it is generally a best practice to advise employees that their employment has been terminated at the point that it is actually ending.

During that termination meeting, the employee should turn over any keys, key cards, or other methods of access, return any company equipment (or make arrangements to return it swiftly), and otherwise wrap up his or her affairs with the company.  The employee should pack up his or her belongings (or you can make arrangements to have them sent), and should be advised about filing for unemployment insurance benefits.  Taking these actions can help make it clear to the employee that employment has ended, and that during the time to consider whether to accept severance pay, the individual is not still employed.