Understanding Severance Agreements in Pennsylvania
Losing a job — whether through a layoff, downsizing, or termination — is a stressful and often disorienting experience. When an employer extends a severance offer, it can feel like a lifeline. But before you sign anything, it is critical to understand exactly what a severance agreement is, what rights you may be giving up, and what protections Pennsylvania and federal law provide you.
This article provides a general educational overview of severance agreements under Pennsylvania law. It is not legal advice. Every situation is unique, and you should consult a qualified employment attorney before signing or negotiating any severance agreement.
What Is a Severance Agreement?
A severance agreement is a legal contract between an employer and a departing employee. In exchange for a payment or other benefits, the employee agrees to release certain legal claims against the employer. In other words, it is a mutual trade: financial compensation in exchange for the employee's promise not to sue.
Severance packages can include a variety of benefits. A typical package may include a lump sum payment, extended healthcare coverage, retirement benefits, and other benefits. Understanding the full scope of what is being offered — and what is being waived — is essential before signing.
Is Severance Pay Required in Pennsylvania?
This is one of the most common questions employees ask, and the answer surprises many people. Pennsylvania law does not require employers to pay severance unless a contract, collective bargaining agreement, or company policy states otherwise. Some employers offer severance as part of a layoff package, but this is a business decision, not a legal mandate.
Pennsylvania is also an at-will employment state, meaning an employer can terminate an employee at any time and for any reason, except for unlawful reasons such as discrimination or retaliation. However, termination rules may differ if you have an employment contract or are a union member.
There is one important exception worth noting: Pennsylvania's Business Corporation Law (15 Pa. C.S. § 2582) does impose severance obligations in certain corporate change-of-control scenarios, specifically when an employee is terminated within a specific window surrounding a control-share acquisition. This is a narrow, technical provision that applies to publicly registered corporations — but it illustrates that severance obligations can arise in specific circumstances even when no individual contract exists.
What Rights Are You Waiving When You Sign?
This is where careful review becomes absolutely essential. An employer will rarely provide severance pay without a severance agreement that requires the employee to waive certain legal rights. Employees all too often enter into severance agreements without fully understanding the legal rights they might be giving up.
A severance agreement must explicitly list the claims the employee is releasing under federal and state law. In Pennsylvania, the state law claims that may be released include those under the Pennsylvania Human Relations Act, Pennsylvania's Equal Pay Law, Pennsylvania's Wage Payment and Collection Law, Pennsylvania's Personnel File Inspection Act, Pennsylvania's minimum wage and overtime laws, and Pennsylvania's leave laws.
On the federal side, releases may also cover wage-and-hour claims under the Fair Labor Standards Act (FLSA), and potentially Family and Medical Leave Act (FMLA) claims if there were any disputes over leave entitlement.
Critically, the release should only waive claims that arose prior to the effective date of the agreement. A release attempting to waive future claims would generally be unenforceable.
What About Wage Claims?
Pennsylvania's Wage Payment and Collection Law 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 it is not supported by additional compensation or was entered into under questionable circumstances. If you have outstanding wage or commission disputes, these must be carefully addressed before any release is signed.
Special Protections for Workers Age 40 and Older
If you are 40 years of age or older, federal law provides you with significant additional protections when it comes to severance agreements. The Older Workers Benefit Protection Act (OWBPA), which is part of the Age Discrimination in Employment Act (ADEA), requires employers to follow a strict set of requirements to obtain a valid release of any age discrimination claims.
Under the OWBPA, employees aged 40 or older must be given a minimum of 21 days to consider a severance agreement before signing it. However, if the severance agreement is offered as part of an exit incentive or other employment termination program involving a group or class of employees, the consideration period must be extended to at least 45 days. Additionally, the agreement must allow the employee a minimum of 7 days to revoke their acceptance after signing, and the agreement does not become effective or enforceable until this revocation period has expired.
For a waiver of ADEA claims to be valid, the agreement must also meet additional requirements:
- Written in plain language that the employee can understand without legal training
- Specifically reference the ADEA — the waiver must explicitly state that the employee is waiving rights under the Age Discrimination in Employment Act
- Advise the employee in writing to consult with an attorney before signing
- Provide adequate consideration — something of value beyond what the employee is already entitled to
If your employer fails to meet even one of these requirements, the age discrimination waiver may be void — meaning you could potentially sign the agreement, collect the severance, and still retain the right to file an age discrimination claim. This makes careful legal review especially important for workers in this age group.
It is also important to know that employees cannot be prohibited from filing a charge with the Equal Employment Opportunity Commission (EEOC) or participating in an EEOC investigation, regardless of what a severance agreement says.
Confidentiality and Non-Disparagement Clauses: New Federal Limits
Severance agreements often include confidentiality clauses (requiring the employee to keep the terms of the agreement private) and non-disparagement clauses (prohibiting the employee from making negative statements about the employer). These provisions have come under significant federal scrutiny in recent years.
In its landmark 2023 decision in McLaren Macomb, the National Labor Relations Board (NLRB) held that severance agreements containing broad confidentiality and non-disparagement provisions may violate the National Labor Relations Act (NLRA) by interfering with employees' Section 7 rights — including the right to engage in protected, concerted activity.
Importantly, this does not mean all such clauses are banned. Confidentiality and non-disparagement provisions are not outright unlawful. However, they must be narrowly tailored — for example, limited to a specific period of time and grounded in legitimate business justifications. Overly broad provisions that could chill employees from speaking with coworkers, unions, or the NLRB about workplace conditions remain at risk of being deemed unlawful.
Pennsylvania employers and employees alike should be aware that the NLRB has stated it will apply the McLaren Macomb decision retroactively, meaning older agreements with overbroad clauses could also be affected.
Common Components of a Pennsylvania Severance Agreement
While every severance agreement is different, the following provisions commonly appear in agreements offered to Pennsylvania employees:
- Severance Pay: A lump sum or continuation of salary for a defined period
- Benefits Continuation: Extended health insurance, COBRA continuation, or other benefits
- Release of Claims: A list of legal claims the employee agrees to waive
- Non-Disparagement Clause: Restrictions on making negative statements about the employer (must be narrowly tailored post-McLaren)
- Confidentiality Clause: Restrictions on disclosing the agreement's terms (similarly must be narrowly tailored)
- Non-Compete or Non-Solicitation Clause: Restrictions on future employment or client solicitation (these are subject to separate enforceability analysis under Pennsylvania law)
- Reference Agreements: What the employer will say about the employee to future employers
Can You Negotiate a Severance Agreement in Pennsylvania?
Yes — and you often should. Just because a company offers a severance agreement does not mean an employee should immediately sign and accept the original terms. An employee may be waiving legal rights that have a value more substantial than the consideration being provided under the agreement.
For example, if the circumstances surrounding the termination suggest a viable employment discrimination claim — such as age discrimination, race discrimination, sex discrimination, or retaliation — the employee may have a claim worth substantially more than the financial consideration being offered in the severance agreement.
Some areas where negotiation is commonly possible include:
- The amount or duration of severance pay
- Extension of health benefits
- The scope of the release of claims
- Non-compete or non-solicitation terms
- The language of any reference provided by the employer
- Outplacement services or career transition support
It is also important to be aware that changes in Pennsylvania or federal employment laws can render older severance templates outdated. Both employees and employers should approach any agreement with current legal guidance.
What About WARN Act Obligations?
Pennsylvania does not have a state-specific law mirroring federal WARN Act requirements, but the federal obligations remain binding on qualifying employers in Pennsylvania. When reviewing a severance agreement in the context of a mass layoff, parties should consider the federal WARN Act's notice requirements and any potential claims that could arise from inadequate notice — as these claims may be explicitly released (or not) in the agreement.
Key Takeaways for Pennsylvania Workers
- Pennsylvania does not require employers to offer severance pay unless a contract or policy mandates it.
- Signing a severance agreement typically means waiving significant legal rights — understand exactly which claims you are releasing before signing.
- Workers aged 40 and older have federal protections under the OWBPA, including mandatory review periods and a 7-day right to revoke.
- Broad confidentiality and non-disparagement clauses in severance agreements face increased federal scrutiny following the NLRB's McLaren Macomb decision.
- Severance agreements are often negotiable — you do not have to accept the first offer.
- You generally cannot be barred from filing a charge with the EEOC, regardless of what a severance agreement states.
Speak With a Pennsylvania Employment Attorney Before You Sign
Severance agreements are complex legal documents with lasting consequences. Before signing — or walking away from — a severance agreement, it is strongly advisable to consult with an experienced Pennsylvania employment law attorney who can evaluate your specific circumstances, assess the value of any claims you may be releasing, and help you negotiate the best possible outcome.
At Leeds Law Firm, our employment law team is experienced in reviewing and negotiating severance agreements for Pennsylvania workers. Contact us today for a confidential consultation to ensure your rights are fully protected.
This article is for general informational and educational purposes only and does not constitute legal advice. No attorney-client relationship is formed by reading this post. Please consult a licensed attorney regarding your specific situation.
