Severance pay clause: a US sample with a release

Sample clause

Written for employment agreement of a data engineer at Lakeline Analytics, a fictional Austin data firm.

Severance. (a) If the Company ends the Employee's employment without Cause, the Company will pay severance of two weeks' Base Salary for each completed year of service, with a minimum of four weeks. (b) Severance is paid in equal instalments on the Company's regular pay dates, starting on the first pay date after the Release becomes effective. (c) Severance is conditional on the Employee signing, and not revoking, a general release of claims in the form provided by the Company. If the Employee is 40 or older, the Employee will have 21 days to consider the release, 45 days if the termination is part of a group program, and 7 days after signing to revoke it. (d) If the Employee elects COBRA continuation coverage, the Company will pay the employer share of premiums for the severance period. (e) No severance is payable on resignation, death, disability or termination for Cause.

Sample wording, not legal advice.

Variants

What to negotiate

• Release timing for workers 40 and over

  Under the Older Workers Benefit Protection Act, a waiver of age discrimination claims is valid only if, among other things, the employee is advised in writing to consult a lawyer, has at least 21 days to consider it, or 45 days in a group termination, and 7 days to revoke after signing. A release that skips these steps may not bar an age claim.

• What counts as cause

  Severance clauses usually exclude termination for cause, so the definition of cause decides who gets paid. Employees should push for a narrow, listed definition with a chance to cure; employers want broader wording. A good reason trigger, letting the employee resign after a pay cut or demotion and still receive severance, is common in executive agreements.

• Benefits and timing

  Health coverage often matters as much as cash. Paying the employer share of COBRA premiums for the severance period, as the sample does, is a common addition. Instalment payments are typical; the clause should state when the first payment is made, after the release becomes effective.

The risk of leaving it out

Without a severance clause, an employer decides case by case, which invites claims that similar employees were treated differently, and an employee has no right to any payment at all. An employer that pays severance without a properly drafted release may pay and still face claims, because the money bought nothing in return.

No federal requirement

The US Department of Labor states that severance pay is a matter of agreement between employer and employee and is not required by the Fair Labor Standards Act. A severance plan offered across a workforce can, however, be an employee benefit plan subject to ERISA, which brings plan document and claims procedure duties. Some state laws require notice or pay for mass layoffs, such as the federal WARN Act's 60 days' notice for covered plant closings. Law checked on 21 October 2026. This page explains how the law works and is not legal advice.

OWBPA release checklist

For a release of age claims by an employee 40 or over to be knowing and voluntary, it must be written in plain language, refer to rights under the Age Discrimination in Employment Act, not waive claims arising after signing, give something of value beyond what the employee is already owed, advise the employee in writing to consult a lawyer, allow 21 days to consider, or 45 days in a group program with the required disclosures, and allow 7 days to revoke after signing.

The sample in numbers

A Lakeline Analytics engineer with 6 completed years and a base salary of $3,000 a week is let go without cause. Two weeks a year gives 12 weeks, above the four week minimum, so severance is $36,000, paid over the next 12 weeks of pay dates once the release becomes effective. An engineer with one year would receive the minimum of four weeks, $12,000 on the same salary.

Where the clause sits in a generated document

Employment agreements, offer letters and termination letters carry severance terms. When asking the AI document generator for one, give the formula, the minimum, the payment method, the release and its timing, any COBRA contribution and the exclusions, so the clause and the later release say the same thing.

Documents that carry this clause

Employment contractA full time ongoing contract for an operations coordinator on $86,000 plus $10,320 of superannuation. Eleven numbered clauses, a leave table drawn from the National Employment Standards, and a notice table that scales with service.Termination letter template that shows the final payA termination letter is read twice, once by the employee in the meeting and once by a lawyer or a tribunal months later, and both need the same facts. This one states the reason and the process in dates, shows the final pay as a table with each component, and says what happens next, so there is nothing to ask afterwards.

Questions people ask