Severance Pay Laws: Understanding Your Rights and Agreements

Losing a job is never easy, even when employment is at-will. In Connecticut, most employees work under at-will rules, meaning an employer can terminate employment at any time, for almost any reason, so long as it isn’t discriminatory or otherwise unlawful.

Because of this flexibility, severance agreements often become an important tool. They provide clarity, compensation, and a way for both the employer and employee to move forward. But many people don’t fully understand how these agreements work or what rights they actually have.

What Is an Employee Severance Agreement?

An employee severance agreement is a contract between you and your employer that lays out the terms of your departure. Typically, it offers a financial payout—sometimes alongside benefits like extended health insurance—in exchange for your agreement to certain conditions. Those conditions may include giving up the right to sue the company, agreeing not to disclose confidential information, or promising not to compete with the business for a period of time.

Unlike wages you’ve already earned, severance pay is not guaranteed under federal law. Whether you receive it usually depends on company policy, a written employment contract, or an individual negotiation. However, once a severance agreement is offered, it becomes legally binding once you sign it. That makes it critical to understand the terms before you commit.

Do all at-will employees get severance? Not automatically. At-will status means your employer can end your employment without owing severance unless they choose to provide it. That’s why reviewing any agreement carefully matters. You don’t want to sign away rights for a payment that may be less than you deserve.

Severance Pay Laws and Connecticut Termination Requirements

It’s important to know that severance pay laws don’t require Connecticut employers to provide severance. Instead, severance is a benefit that employers may offer voluntarily or because of their own policies. However, once they commit to providing it, the agreement becomes enforceable under contract law.

There are Connecticut termination requirements that employers must follow, even in an at-will setting. For example, an employer cannot fire you for discriminatory reasons, such as your age, race, gender, disability, pregnancy, or religion. Nor can they terminate you in retaliation for filing a complaint, reporting unsafe conditions, or exercising a legal right like family medical leave. If a termination crosses one of these lines, the value of your claim may exceed the amount of the severance that is being offered to you in exchange for waiving your legal rights. So, it is critical to consult with an employment attorney before signing the severance agreement.

Another key consideration is timing. Most severance agreements ask employees to waive claims they might have against the company. Federal law requires that employees who are at least forty years of age receive a minimum review period if the waiver involves age discrimination claims, but even if that doesn’t apply, you should never feel pressured to sign on the spot. You should take the agreement home, review it carefully, and seek legal advice before agreeing.

Severance and Unemployment Benefits in Connecticut

Can you collect unemployment and severance in CT? The answer depends on how the severance is structured. Because the rules can be complex, it’s important to clarify with the Connecticut Department of Labor before assuming you’ll receive both. Signing an agreement without understanding how the severance impacts unemployment could leave you without the income you expect.

Employers sometimes structure payments in ways that minimize their own costs but unintentionally limit your benefits. That’s why understanding both the severance terms and unemployment rules matters before you agree.

What to Watch for Before Signing a Severance Agreement

When you’re presented with a severance package, it may feel like you have no choice but to sign. In reality, you should slow down and evaluate whether the terms are fair. Here are a few issues to watch for:

• Release of claims: Most agreements require you to give up the right to sue the company. Make sure the legal rights that you are waiving are not worth more than the payment you are receiving.
• Non-compete or non-solicitation clauses: These can limit your ability to find new work in your field. Review carefully before agreeing to restrictions that could impact your future and your ability to earn a living.
• Benefits continuation: Ask whether health insurance, retirement contributions, or other benefits will continue, and for how long.
• Payment structure: Some severance agreements pay the amount in a lump sum, others pay out through salary continuation over time.

Employers offer severance not just to support you but also to protect themselves. That means the agreement is designed with their interests in mind. Protecting your own interests requires careful review and, often, negotiation. You may be able to secure better terms, especially if you have potential claims against the employer or leverage due to company policy.

Protect Your Rights Before You Sign

If you’ve been offered a severance package as an at-will employee, you’re not alone in wondering what’s fair and what’s required under the law. Severance agreements can be confusing, especially when you’re under the stress of job loss. The key is knowing that severance pay laws don’t guarantee compensation but that you do have rights under Connecticut termination requirements. And while severance can provide short-term financial support, the terms you agree to may affect your long-term options.

Before signing any employee severance agreement, take the time to fully understand its impact. Our employment lawyers at Madsen, Prestley & Parenteau, LLC can help you review the terms, explain how Connecticut law applies to your situation, and, in many situations, negotiate for a more favorable severance package.