Severance Agreements

Severance agreements can play a critical role when an employee faces a job transition, offering them both protection and financial support after departing a position. At Polishan Solfanelli, our seasoned attorneys in Scranton, Pennsylvania, provide guidance on the terms, obligations, and potential long-term effects of severance packages. Whether you are entering into negotiations or reviewing an existing arrangement, our legal team takes the time to explain your rights, highlight potential pitfalls, and ensure you understand every aspect of the agreement. We strive to safeguard your interests by assessing how medical benefits, non-compete clauses, and other essential components might affect your future employment opportunities. Having a thorough, clear agreement can make a significant difference in bridging the gap between one position and the next. Call us today at 570-562-4520 to learn how we can help you protect your financial security and personal goals, and set the stage for a better transition.

Overview of Severance Agreements in Pennsylvania

Severance agreements in Pennsylvania establish the terms under which an employment relationship ends. They set forth responsibilities and benefits for both the employer and the departing employee, addressing matters such as severance pay, continuation of benefits, post-employment restrictions, and obligations to maintain confidentiality. Pennsylvania law does not require employers to offer severance pay, but many choose to do so pro-actively. Reasons can include recognizing an employee’s service, minimizing legal disputes, and fulfilling contractual obligations.

A core requirement under Pennsylvania law is valid consideration, which generally means the departing employee receives something of value they would not otherwise be entitled to if they did not sign the agreement. This is often an additional sum of money beyond final wages or an extended benefit, such as paid health coverage for a specific period. Simply allowing an employee to remain employed for a short time in exchange for their signature may not constitute valid consideration, because continued employment alone is typically insufficient. If an employer ultimatum leaves an employee feeling compelled to sign immediately to avoid sudden termination, courts may interpret the agreement as lacking true voluntariness.

Employees who do sign a severance agreement but believe they were misled, coerced, or denied a reasonable opportunity to review the terms may later challenge it. Pennsylvania courts scrutinize these claims and look for evidence that the signing was deliberate and informed. If the employee did not have a meaningful chance to consult a trusted advisor, or if the timeline was unreasonably tight, a court might consider the circumstances under which the release was signed and potentially invalidate the waiver. If you have questions about your rights or obligations related to a severance agreement, you may wish to consult a lawyer in Scranton, Pennsylvania.

ADEA and OWBPA Requirements

When an employer seeks a release of age discrimination claims from anyone aged 40 or older, federal law imposes additional safeguards under the Age Discrimination in Employment Act (ADEA) and its amendment, the Older Workers Benefit Protection Act (OWBPA). Even if all technical requirements appear to be met, Pennsylvania federal courts can still void the agreement if they believe the totality of the circumstances indicates the waiver was not truly knowing and voluntary.

Under the OWBPA, releases of ADEA claims must:

• Be Written in Plain Language: The release should employ straightforward phrasing without excessive legal jargon.
• Specifically Refer to ADEA: The agreement must identify the ADEA claims the employee is giving up.
• Advise the Employee to Consult with an Attorney: Employers must notify workers in writing that speaking with an attorney is advisable before signing.
• Allow a Consideration Period: Individuals have at least 21 days to decide whether to sign in a one-on-one scenario, or at least 45 days when the release is part of a group exit or reduction-in-force arrangement.
• Provide a 7-Day Revocation Period: After signing, the employee has 7 days to revoke their acceptance.
• Include Employer Disclosures in Group Settings: When a group, class, or cohort of employees is offered a severance package, the employer must give written information about the ages and job titles of those selected and those excluded from the program.

If an employer neglects these requirements, the older worker’s release of age discrimination claims may be unenforceable, leaving the employer vulnerable to later allegations of unlawful age bias. From the employee’s perspective, having adequate time to weigh the offer is crucial. Pennsylvania employees benefit from the same protections as those in other states, and the overall objective is ensuring workers’ decisions are both informed and unpressured. A Scranton, Pennsylvania attorney can help ensure that your rights are protected when reviewing severance agreements under these federal requirements.

Common Provisions in Severance Agreements

Severance agreements cover various topics, all subject to Pennsylvania contract law standards. Key provisions include:

• Severance Pay: Employers often provide either a lump sum or periodic payments. Length of service, job role, and employer policy can influence the calculation. Unused paid time off or vacation pay may be included or clarified separately. Notably, receiving certain forms of severance can influence the timing or amount of Pennsylvania unemployment compensation.
• Liability Release: By signing a release, a former employee generally waives legal claims they might have against the employer arising from discrimination, retaliation, or other workplace-based disputes. In Pennsylvania, these releases must be supported by valid consideration and offered knowingly and voluntarily. Still, certain claims—such as workers’ compensation or unemployment compensation—cannot be waived. Furthermore, employees cannot be barred from filing or aiding in a government investigation.
• Health Insurance Benefits: Agreements may include employer-sponsored health coverage for a set period. If remaining on the group plan through federal COBRA or a Pennsylvania-specific continuation requirement (including mini-COBRA for smaller businesses), the agreement should clarify the terms, any premium contributions from the employer, and coverage duration. Clarity here helps the employee decide if the severance package meets practical needs for ongoing health care.
• Confidentiality: A confidentiality clause prevents a departing employee from releasing proprietary information, such as client lists, trade secrets, business processes, or other sensitive data. Clauses must be carefully drafted so as not to overreach. Pennsylvania law respects confidentiality provisions as long as they do not stifle lawful whistleblower activities or prevent an employee from responding to government inquiries.
• Return of Company Property: Employers often condition severance on returning laptops, phones, documents, electronic files, access cards, and any other corporate property. A certification stating that all items have been returned may be part of the final release documentation.
• Non-Compete: Post-employment restrictive covenants can prohibit an individual from working for a competitor within a defined geographic area and for a specified duration. These restrictions are disfavored if they are overly broad but can be enforced if they meet Pennsylvania criteria: legitimate business interest, adequate consideration, and reasonableness in scope. Pennsylvania’s “blue pencil” rule allows a court to narrow an overly broad covenant if doing so is feasible.
• Non-Solicitation: This provision restricts a former employee’s ability to recruit the employer’s clients or current employees. As with non-competes, the restriction must align with a legitimate employer interest and be neither too extensive nor lengthy.
• Non-Disparagement: Such clauses bar the parties from making harmful statements about one another. They can be mutual or unilateral. Sometimes, if mutual agreement cannot be reached, employees negotiate a neutral reference clause ensuring the employer provides only dates of employment and job title to prospective new employers.

Liability Releases and Waivers

Many severance agreements in Pennsylvania hinge on a liability release. By signing, the departing worker generally waives the right to bring claims tied to their former employer’s actions prior to the agreement date. Common targets of these releases include allegations of discrimination, retaliation, breach of contract, or wage payment disputes. Courts typically uphold these waivers if:

• Adequate Consideration Exists: The employee must receive something beyond final wages or benefits already owed.
• The Release Is Knowing and Voluntary: Courts assess factors such as time given to review the agreement, the opportunity (and encouragement) to consult counsel, the employee’s level of business acumen, and any pressure by the employer.
• The Scope Is Reasonably Limited: Employees may not waive the right to future claims. A release typically covers claims that arose on or before the date of signing.
• Public Policy Standards Are Observed: Statutory entitlements like unemployment compensation cannot be waived. Agreements also must not obstruct governmental investigations or other non-waivable legal rights.

If the release is too scattered or imposes extreme restrictions, Pennsylvania courts may nullify it entirely or revise the problematic language. Thus, precision and fair value exchange form the bedrock of an enforceable release. If you have questions or concerns about the terms of a severance agreement, consider speaking with an attorney in Scranton, Pennsylvania.

Non-Compete Provisions

Restrictive covenants, including non-competes, are often controversial. Pennsylvania law will enforce an agreement not to compete if it meets core criteria:

• Legitimate Business Interest: Protectable interests under Pennsylvania law include trade secrets, confidential information, specialized training provided by the employer, and established customer relationships.
• Adequate Consideration: The employer must offer something of value (e.g., a raise, bonus, promotion, or part of a severance arrangement) that the worker would not receive otherwise.
• Reasonable Scope: Geography and duration should be limited to what is necessary for the employer’s genuine protection. Overly broad geographic ranges and multi-year durations invite judicial scrutiny.
• Blue Pencil Doctrine: Courts can modify an unreasonable provision rather than strike the entire clause. This approach allows some enforcement within the bounds of fairness.

Pennsylvania courts generally look askance at attempts to stifle a person’s right to earn a living if the employer’s real interest is minimal or if the restriction extends far beyond an identifiable and substantial business need. Because choice-of-law clauses may factor into this analysis, parties should confirm which state law will apply.

Non-Disparagement Clauses

Non-disparagement clauses aim to prevent parties from tarnishing each other’s reputations. Pennsylvania recognizes such clauses but imposes limits:

• Mutual vs. Unilateral: Employees may request that the employer also pledge not to disparage them.
• Interaction with Confidentiality: If another clause limits discussion of trade secrets, that can overlap with non-disparagement provisions, though certain whistleblower exceptions remain.
• Enforcement Complexities: Proving an actual breach of a non-disparagement term can be challenging if the language is vague. Detailed definitions of “disparagement” in the agreement reduce ambiguity.

Enforceability of Severance Agreements

A properly drafted severance agreement is usually upheld in Pennsylvania if these components are present:

• Adequate Consideration: The departing worker must receive an extra benefit or payment in exchange for giving up legal rights.
• Clear Terms: Ambiguous or contradictory text can lead to unfavorable interpretations against the drafting party.
• Knowledge and Voluntariness: The agreement must not be sprung on the employee at the last minute with no time to review. Courts assess whether the employee had a sufficient opportunity to seek outside assistance.
• Alignment with Public Policy: Contracts cannot override statutory rights or impede regulatory investigations.
• Severability: Including a severability clause allows a court to remove or adjust offending language without nullifying the entire agreement.

When employers draft overly sweeping provisions—such as extremely broad non-competes or attempts to waive unwaivable protections—Pennsylvania courts may strike those sections or revise them to be more narrowly tailored. Maintaining clarity and fairness throughout helps bolster the agreement’s defensibility later on.

Severance pay can affect Pennsylvania unemployment compensation eligibility or the benefit amount. The state’s unemployment office determines whether the severance is considered disqualifying income that can delay or reduce benefits. Factors such as how the payment’s structured, the date of payment, and whether the amount is tied to accrued wages may be considered.

From a tax angle, severance is generally treated as income for federal, state, and local tax purposes. Employers typically withhold federal income tax, Social Security, and Medicare from severance checks. A larger severance might move an employee into a higher marginal tax bracket for that year, potentially creating a need for additional tax planning or quarterly estimated tax payments. Specific advice on structuring severance for tax advantages can vary widely, which may prompt some employees to discuss potential strategies with a tax professional.

A Scranton, Pennsylvania lawyer can help explain how severance payments may impact both unemployment compensation and tax obligations according to the circumstances of your agreement.

Potential Breaches and Legal Remedies

If a party fails to honor the severance agreement’s stipulations, this can lead to a breach-of-contract claim. Examples include:

• Nonpayment of Severance: The employer might stop or reduce payments, or fail to contribute promised health benefits.
• Confidentiality Breach: The employee discloses proprietary data or trade secrets.
• Restrictive Covenant Violation: A former employee joins a competitor in contravention of a non-compete or solicits former clients against a non-solicitation clause.
• Disparagement: One side publicly criticizes or defames the other in a way the contract explicitly forbids.

Available remedies can include money damages or injunctions. Courts in Pennsylvania may also issue specific performance decrees if monetary relief is insufficient. Breach-of-contract claims generally must be brought within four years under Pennsylvania law. Meanwhile, the aggrieved party is expected to mitigate any harm (for instance, by promptly seeking alternate employment or halting the other side’s continuing violations if feasible).

Negotiation and Customization

Severance agreements are not one-size-fits-all. Employers ordinarily seek to limit legal exposure, while employees typically seek adequate economic protection and freedom to find new work. Pennsylvania law allows broad negotiation flexibility, as long as each provision is lawful, supported by consideration, and not at odds with public policy. Some areas open to negotiation include:

• Enhanced Severance or Benefits: Employers may offer a higher payout to secure a more robust release or reduce the risk of future disputes.
• Restrictive Covenant Adjustments: Employees who do not wish to be bound by a long non-compete may negotiate the duration, geographic area, or the scope of industries covered.
• Coverage for Health Insurance: If extended benefits matter to the employee, the parties can define how premiums are paid—perhaps with an employer subsidy for a set period.
• References and Post-Separation Communication: Parties may agree to mutual non-disparagement or neutral reference terms to protect future job prospects for the employee.
• Defining Key Terms: Clarity around what constitutes “solicitation” or “competition” minimizes confusion that can lead to litigation.

Changes in Pennsylvania or federal employment laws can render older severance templates outdated. Wise employers revisit their agreements periodically to ensure compliance with new court rulings or statutory shifts. Meanwhile, employees should remain alert to statutory changes affecting rights they might otherwise waive.

Wage-and-Hour and FMLA Waivers

Many severance agreements attempt to secure a release of possible wage-and-hour claims under laws such as the Fair Labor Standards Act (FLSA) or the Pennsylvania Wage Payment and Collection Law. Employers may also seek a release of potential Family and Medical Leave Act (FMLA) claims if the employee had any disputes over leave entitlement. While Pennsylvania courts generally uphold releases that are knowing and voluntary, the enforceability of FLSA or FMLA waivers can be subject to closer scrutiny because of the strong public interest in ensuring employees receive proper pay and leave.

Under certain circumstances, a private settlement of FLSA claims might require oversight to confirm that employees are fairly compensated for any unpaid wages or overtime. Although courts in some jurisdictions require approval by the Department of Labor or a court, Pennsylvania federal courts may consider such factors as whether the relief is adequate and whether employees had representation or the chance to consult counsel. If a severance agreement attempts to block or waive rights in a way that contravenes the FMLA or relevant wage-and-hour statutes, that portion of the agreement may not be enforceable.

Pennsylvania’s Wage Payment and Collection Law also ensures that workers receive wages due, including commissions or accrued but unused vacation, if established as wages by policy or contract. An agreement purporting to release those rights may be scrutinized, particularly if not supported by any additional compensation or if entered into under questionable circumstances. Any confusion about unpaid wages or leave entitlements should be addressed clearly so that the release accurately reflects the arrangement and does not infringe on non-waivable protections. If you have concerns regarding the enforceability of wage-and-hour or FMLA waivers in a severance agreement, consider speaking with a lawyer in Scranton, Pennsylvania.

WARN Act and Large-Scale Layoffs

The federal Worker Adjustment and Retraining Notification (WARN) Act may come into play in substantial layoffs involving certain employers. Generally, the WARN Act requires employers with at least 100 full-time workers to provide 60 days’ notice before a mass layoff or plant closure that meets specified thresholds. If proper notice is not given, some employees might have claims for wages and benefits for the period in which they were not duly notified.

While the WARN Act does not mandate severance, some employers institute severance packages to soften the impact of layoffs or to reduce legal exposure. If the workforce reduction involves employees 40 years or older, the OWBPA standards regarding age discrimination releases still apply. Pennsylvania does not have a state-specific law mirroring federal WARN requirements, but the federal obligations remain binding on qualifying employers in Pennsylvania. When drafting or reviewing a severance agreement in the context of a mass layoff, parties should consider the WARN Act’s notice requirements and any potential claims that could arise from inadequate notice.

Collective Bargaining Considerations

For unionized workers, collective bargaining agreements (CBAs) often govern the terms of severance or wages owed at separation. Although an individual severance agreement can exist concurrently with a CBA, if the CBA addresses severance pay or mandatory layoff benefits, that negotiated contract may supersede or limit elements of an individual deal. In Pennsylvania, union agreements typically define layoff procedures, callbacks, seniority rights, and sometimes severance or separation pay. Employers and employees should verify whether any issues in the severance agreement conflict with the CBA. If there is a conflict, the CBA’s terms often prevail, and disputes might be handled under the CBA’s grievance or arbitration procedures rather than the usual court process.

Payment Structures and Their Implications

Severance can be disbursed as a lump sum or through periodic payments. Both arrangements affect Pennsylvania employees differently:

• Lump-Sum Payment: This method grants the entire severance in one larger payment. While this delivers immediate financial support, it may also result in higher tax withholding in a single paycheck. For some employees, this larger sum could raise their tax bracket that year and produce a more substantial up-front deduction in unemployment benefits, depending on state regulations.
• Installment Payments: Paying severance over weeks or months might help an employer manage cash flow while also potentially affecting the employee’s eligibility for unemployment benefits and the withholding of taxes. For some employees, the extended horizon can offer more predictable short-term income. However, if an employer experiences financial hardship and cannot fulfill the promised installments, it can create a risk for the employee, who may have to pursue legal remedies to recover unpaid amounts.

Employees evaluating these options often consider their personal tax situation, immediate financial needs, and the potential impact on their unemployment compensation claims. Employers might also weigh the potential administrative complexity of ongoing payments against offering a single, final payout. Both parties usually benefit from clearly stating whether severance, regardless of its distribution schedule, is contingent upon continued compliance with non-compete or other restrictive covenants. A Scranton, Pennsylvania attorney can help review proposed payment structures to ensure your interests are protected.

Pennsylvania Mini-COBRA Coverage

For some workers at smaller companies not subject to federal COBRA (which generally applies to employers with 20 or more employees), Pennsylvania’s mini-COBRA law can provide continued health insurance coverage under the employer’s group plan for a limited period. Employers should clarify in their severance agreements whether they fall under federal COBRA or mini-COBRA. Under mini-COBRA, eligible employees may elect continued coverage at their own expense, though sometimes an employer might subsidize the premiums for a specified duration as part of the severance package.

The mini-COBRA coverage period is typically nine months, significantly shorter than the up to 18 months found under federal COBRA, but it still offers a safety net for employees transitioning to new employment. A thorough severance agreement will specify which law applies (COBRA or mini-COBRA), how premium payments will be reconciled, and which parties bear financial responsibility.

Special Provisions for High-Level Executives

High-level or key executives often have additional or more complex arrangements in their severance agreements. Such contracts may address:

• Stock Options or Equity: Executives might negotiate accelerated vesting or a defined window in which to exercise stock options.
• Bonus and Incentive Plans: Executives commonly have performance-based bonuses. The severance agreement may address prorated bonuses or payouts for partially completed performance cycles.
• Additional Restrictive Covenants: Senior staff typically have deeper access to confidential business information and might be subject to more stringent non-compete clauses.
• Golden Parachute and Golden Handshake Concerns: In some industries, multi-year severance or guaranteed compensation packages could exist. While these terms are generally enforceable if supported by valid consideration, they demand careful drafting under Pennsylvania contract principles.

Employers and executive-level employees alike must ensure that such provisions meet Pennsylvania’s requirement for reasonableness in restrictive covenants, valid consideration, and consistency with public policy. As some executive contracts intersect with securities laws or specialized compensation plans, legal reviews may be more extensive.

Tax Strategies and Planning Considerations

Beyond the standard wages-type taxation of severance, some employees and employers explore creative structuring to address potential tax or financial planning goals. While Pennsylvania treats severance as taxable compensation, parties sometimes examine:

• Timing of Payments: Splitting a severance across two calendar years if the layoff occurs near the end of one year can affect the employee’s marginal tax bracket for both years.
• Deferred Compensation Arrangements: Complex plans may delay payment until later, provided they comply with federal rules under Internal Revenue Code Section 409A. This route is more common for executives or professionals with detailed compensation packages.
• Withholding Adjustments: Employees can adjust their Form W-4 to account for a larger severance to avoid end-of-year surprises.

Because each individual’s financial circumstances differ, approaching severance with personal (or business) tax planning in mind can be valuable. In many cases, a Pennsylvania worker might wish to consult a financial advisor or tax professional who can help ensure their payments are structured advantageously.

Practical Advice for Employers and Employees

When shaping or reviewing a severance agreement, both sides should remain mindful of essential considerations:

• Clear, Written Communication: Oral representations about severance may be difficult to prove or enforce later. The written agreement should be thorough and consistent with all negotiated terms.
• Sufficient Time to Review: Although the OWBPA mandates minimum consideration periods for workers over 40, Pennsylvania employees of all ages benefit from having a fair chance to read and understand the document.
• Tailoring Agreements: Using a template can be a starting point, but customizing the deal to address the specifics of the position, the employee’s tenure, and the company’s needs can minimize disputes.
• Ensuring Voluntariness: Employers avoid undermining enforceability by letting employees consult advisors freely. A rushed or pressured scenario could later be portrayed as coercion.
• Documenting Consideration: Spelling out the exact additional payment or benefit granted in exchange for the release helps demonstrate why the agreement is binding.

A well-structured deal offers clarity, reduces future tensions, and stands on firmer legal ground under Pennsylvania’s contract law framework. Employees appreciate transparency and fairness, while employers gain protection against unexpected legal battles. By addressing nuances like wage-and-hour or FMLA waivers, WARN Act requirements, union issues, and any special executive provisions, a severance arrangement can encompass the full range of potential concerns that might otherwise spark disputes. Guidance from an attorney in Scranton, Pennsylvania can help ensure these agreements meet legal requirements and protect your interests.

Summary of Key Pennsylvania Legal Points

While an overarching list cannot replace the substance of a thorough severance agreement, parties to an employment separation in Pennsylvania often concentrate on these core components:

• Voluntariness: The employee’s agreement to the release must be genuine, not compelled by threats or insufficient time.
• Consideration: There must be a tangible benefit beyond anything the employee was already entitled to receive.
• Legally Permissible Waivers: While many statutory claims can be waived, some rights, like workers’ compensation and unemployment benefits, cannot be relinquished.
• Compliance with Federal Requirements: Age discrimination waivers (OWBPA), mass layoff notices (WARN Act), COBRA or mini-COBRA, and compliance with FLSA or FMLA waivers can all factor into enforceability.
• Reasonableness of Restrictive Covenants: Pennsylvania’s courts weigh whether a non-compete serves a legitimate business purpose and is properly limited in time, scope, and geography, and whether other clauses (non-solicitation, non-disparagement, confidentiality) are proportionate to the employer’s interests.
• Coordination with Union Contracts: Collective bargaining agreements can supersede inconsistent severance terms, so clarity is crucial for union members.
• Payment Method: Lump sum or installment-based severance each has distinct implications for taxes and unemployment compensation.
• Taxes and Exact Terms: Severance is treated as ordinary income, and focusing on how payments are structured can mitigate larger tax consequences or help with unemployment eligibility questions.

By keeping all these elements in mind, employers and employees in Pennsylvania are positioned to enter severance agreements that accurately reflect their needs, maintain compliance with applicable laws, and minimize the likelihood of litigation after the job separation.

Assistance With Legal Issues in the Workplace

Navigating legal matters in the workplace can feel uncertain, especially when dealing with terms like severance pay, confidentiality clauses, and post-employment restrictions. Whether you are preparing to leave your job or assessing an agreement already on the table, taking steps to safeguard your rights is key. Polishan Solfanelli offers assistance to employees and employers seeking balance and clarity through these transitions. Our experienced Scranton, Pennsylvania lawyers focus on ensuring that the agreements you sign align with your goals and comply with relevant rules. From addressing state-specific requirements, such as Pennsylvania’s consideration standards, to tackling federal concerns under the Older Workers Benefit Protection Act or WARN Act, we take a comprehensive approach to your workplace issues. If you have questions about potential severance terms or other separation-related topics, reach out to Polishan Solfanelli at 570-562-4520. We aim to provide clear, actionable guidance so you can move forward with confidence and peace.