Severance Pay

• Generally speaking, severance agreements include payments provided to employees whose employment is ending due to layoff or job elimination. In these cases, employers offer severance pay to ease the transition from full employment to unemployment, to obtain waivers of discrimination from employees who may seek redress for possible wrongful termination, and to acknowledge employees' length of service to the employer. The U.S. Equal Employment Opportunity Commission provides guidance to employers crafting severance agreements and strongly recommends that employers include specific terms that address anti-discrimination laws such as the Age Discrimination in Employment Act and the Older Workers Benefit Protection Act.
  
  

Texas Payday Law

• Texas is unique in that its state laws contain specific regulations concerning severance pay. Severance pay in Texas can either be a condition of employment provided to the employee in writing upon beginning the employment relationship or it can be an implied promise to reward the employee after her tenure with the company ends. Written severance agreements are enforceable by law; implied agreements may be more difficult to prove they even exist. The Texas Administrative Code regarding fringe benefits codifies severance pay and states: "Severance pay is payment by an employer to an employee beyond the employee's wages on termination of employment, based on the employee's prior service. Severance pay does not include payments for liquidated damages, payments in exchange for a release of claims, or payments made because of a lack of notice of separation." The Texas version of severance pay and the EEOC guidelines differ significantly in that Texas severance payments aren't conditioned upon the release of claims, such as the severance agreements the EEOC discusses.
  
  

Unemployment Compensation

• Texas law prevents some employees who receive severance pay from double-dipping. That is, if the employer distributes payment according to what the law calls "wages in lieu of notice," and calculates the payment based on the length of time it covers based on the employee's wages, this precludes the employee from receiving unemployment compensation for that period. However, if the employer classifies severance pay as just that — severance pay to acknowledge the employee's length of service — and doesn't calculate the payment as if it constitutes wages in lieu of notice, the employee may be entitled to unemployment benefits. Employers may benefit from the former scenario because an employer's experience rating can increase, based on unemployment claims charged against the company. Employers can prevent changes to their experience rating by classifying a severance payment as wages deemed sufficient to last a specified period as though the recipient was still employed. For example, upon distributing post-termination payment, the employer states the payment is equal to two months' pay, the employee may not receive unemployment compensation from the state until two months later.
  
  

Reporting Requirements

• Whether an employer categorizes post-employment payments as wages in lieu of notice or as severance pay, the company has certain reporting obligations. Employers must provide information to the Texas Workforce Commission office that handles unemployment benefits as notice that the employee has received wages in lieu of notice. This prevents unemployment benefits from being awarded for the duration of the employee's post-termination payments. The U.S. Department of Labor enforces employers' reporting obligations under the Employee Retirement Income Security Act for payments strictly considered severance pay, as they are deemed an employee benefit.