In the employment context, the employer's payment of money or other benefits given to an employee when the employment relationship terminates. It is typically offered in exchange for the employee waiving certain rights, such as the right to bring certain claims against the employer. It can be negotiated either:

Pre-negotiated severance is more typical for executive-level employees (see Practice Note, Terminating a Senior Executive: Key Compensation and Benefits Issues, and Standard Document, Executive Severance Plan). Severance may also be paid under a plan adopted by the employer for all or certain sub-sets of its employees (see Standard Document, Severance Pay Plan for Employees). Waivers of employee rights in exchange for severance must contain particular language to be valid under federal and state law.

US law does not mandate severance, unlike Canada and the UK, which do require severance to employees in certain instances.

For more information on severance see Practice Note, Conducting Layoffs and Other Reductions in Force: Severance Packages or Plans and Layoffs and Reductions in Force Checklist: Severance Considerations; see also EEOC: Older Workers Benefit Protection Act of 1990 (OWBPA).

For the EEOC's guidance on the federal requirements, see EEOC: Understanding Waivers of Discrimination Claims in Employee Severance Agreements.

For more on drafting and negotiating severance agreements, see:

To learn about severance payments provided by way of an employee benefit plan, including the potential application of the Employee Retirement Income Security Act of 1974 (ERISA) and Internal Revenue Code Section 409A to different types of severance arrangements, see: