Employment termination leads to many questions about the future. One of which is about severance, or separation pay. In Texas, an employer usually does not owe an employee severance pay. In some cases, however, severance packages are required for termination employees under Texas law. Knowing when severance pay is required benefits an employee greatly, especially when they are suddenly out of a job.
Earned Wages Vs. Severance Pay – What Exactly is Severance?
Severance packages are different than earned wages and should not be confused when discussing end-of-employment options. Earned wages include salaries, commissions, bonuses, and other special payments earned in the course of an individual’s regular employment. If an individual’s employment is terminated, whether by quitting or firing, they must be paid in full at the next regular payday for all earned wages. In Texas, all terminated employees must be paid in full within six days.
Severance pay is based on the employee’s prior service, such as the length of their employment, and can be described in terms of the employee’s current pay. While severance packages usually take the form of monthly or annual salary figures, since they are not mandated by Texas law, the amount is ultimately up to the employer’s discretion. This free-dealing is why it is essential for employers and employees to document all the details in a severance agreement.
What Are My Rights to Severance Pay?
The Texas Payday Law makes clear that severance pay is not mandated to be distributed to employees at termination. This does not mean, however, that it is not fairly common for severance provisions to exist in private employment agreements or company policies. If such a provision exists, it is important for an individual to understand all the rights that come with their respective severance package, as well as those rights that they may lose by accepting it.
Under the Texas Unemployment Compensation Act of 1993, some individuals may be disqualified for unemployment benefits if they have received severance pay. Unemployment benefits under this law vary among different employment types, thus it is necessary to compare those benefits with any benefits under a severance agreement. Generally, severance packages in company policies and employment agreements are open to negotiation, and even rejection if an individual finds more attractive benefits through mandated state programs.
Two federal laws tailor severance pay specifically for employees over 40 years old. The Old Workers Benefit Protection Act (OWBPA) mandates that a terminated employee be given 21 days to consider their severance agreement, after which it is considered null and void. This 21 day window also covers the timeline in which employees may consider the release any age discrimination claims before signing a severance agreement. In Texas, employees 40 and older also have seven days to revoke a severance agreement after signing. This gives employees an option to change their mind if they decide down the road that the agreed-to terms are not satisfactory.
Under the Age Discrimination in Employment Act (ADEA), age discrimination against employees aged 40 and older is prohibited. Any waiver of age discrimination claims in severance agreements thus have to comply with both the OWBPA and the ADEA. If an employer fails to meet these requirements, they risk having the waiver declared unenforceable and face potential age discrimination suits from employees who signed invalid severance agreements.
What are Common Provisions in a Severance Agreement?
If an individual were to accept and sign a severance agreement, there are many common provisions in it that they should be familiar with. Along with a waiver of age discrimination claims for employees over the age of 40, there are other, more universally applied, releases of claims. By signing a severance agreement with terms to “release claims” or “release all claims,” an employee forfeits the right to sue their employer. This can be particularly devastating in cases where discrimination led to an employee’s termination, and thus would warrant a number of wrongful termination lawsuits.
Severance agreements may also include restrictive covenants. These provisions can take the form of noncompete agreements, which limits an employee’s ability to work after their current employment period ends. Noncompete agreements most often restrict work with competitors for a period of time or can hinder an employee from taking their current employer’s clients.
Another common restrictive covenant in severance packages is a nondisclosure, or confidentiality, agreement. This clause requires an employee to maintain confidentiality surrounding workplace matters after their employment period ends. Nondisclosures may also have the adverse effect of restricting future lawsuits against the employer.
All specific terms and provisions within a severance package are open to negotiation between the employer and employee to benefit both sides. For instance, an employee can request additional pay if such restrictive covenants are numerous in the agreement.
Conclusion
Though Texas law does not mandate severance pay for employees, it is crucial to understand the provisions in such agreements as they are common in private practice. Especially for Texas employees over the age of 40, severance agreements may contain numerous rights and restrictions to be aware of. For guidance on how to navigate severance packages in Texas, feel free to reach out to a member of our employment team.
Contribution to this blog by Michael Touma.
