Severance Agreements in Texas: What to Know Before Signing
If you’ve been terminated from a high-paying role in Texas, your employer may present you with a severance agreement. While not required by Texas law, severance agreements are common and often used to manage risk for both parties. This guide explains how severance agreements work, which laws apply, and what you should consider before signing a severance agreement.
What Is a Severance Agreement in Texas?
A severance agreement is a contract between an employer and a departing employee. It outlines the amount of severance pay and other terms of separation. In exchange, the employee often agrees to a release of claims, meaning they will not sue the employer for issues like wrongful termination, wage and hour disputes, or discrimination.
In Texas, severance is not required by employment law unless specified in an employment contract or company policy. Texas is an at-will employment state, which means employers can terminate employees for almost any reason that is not illegal. However, companies may still offer severance to avoid future legal disputes.
Legal Foundations That Impact Severance
Several federal laws may influence the terms of your severance agreement:
- Employee Retirement Income Security Act (ERISA): Protects benefits like pensions and 401(k) plans. Some severance plans fall under ERISA.
- Consolidated Omnibus Budget Reconciliation Act (COBRA): Requires employers to offer continued health insurance coverage for eligible employees after separation.
- Older Workers Benefit Protection Act (OWBPA): If you’re over 40, your severance agreement must follow strict rules. You must be given 21 days to consider the offer and 7 days to revoke after signing.
- Fair Labor Standards Act (FLSA): Protects employees’ rights related to minimum wage and overtime. A wage and hour claim may not be waivable under a standard release.
Employers may also use severance to limit risk after a reduction in force, internal restructuring, or to mitigate exposure to potential employment law claims.
Common Clauses in Severance Agreements
A standard Texas severance agreement often includes the following:
1. Amount of Severance Pay
This can be a lump sum or paid over time. It is often based on years of service, job title, or negotiation. Executives and high earners typically have more leverage.
2. Health Insurance Continuation (COBRA)
The consolidated omnibus budget reconciliation act (COBRA) allows you to continue health insurance coverage after job loss. Your employer may or may not agree to cover some or all of the premiums.
3. Release of Claims
This provision prevents you from suing your employer for any legal claims that occurred before signing the agreement. These may include claims under Title VII, the Americans with Disabilities Act (ADA), the Family and Medical Leave Act (FMLA), and more.
4. Confidentiality Clause
You may be asked to keep the terms of the agreement confidential. This clause may also cover company information and trade secrets.
5. Non-Compete and Non-Solicitation Clauses
You may be restricted from joining competitors or soliciting clients and employees. These clauses should be carefully reviewed.
6. Return of Company Property
You will likely need to return all company equipment, documents, and confidential information.
7. Disparagement Clause
This clause may prevent both parties from making negative statements about each other.
Severance and Unemployment Benefits in Texas
Whether a terminated employee qualifies for unemployment benefits after receiving severance depends on how the agreement is structured. According to the Texas Workforce Commission, severance that is unilaterally offered may delay or reduce unemployment eligibility, while negotiated severance agreements typically do not.
If severance pay is structured as continued salary (salary continuation), you may not qualify for benefits during that time. Speak with a legal professional to understand the impact.
When You Should Negotiate
Do not assume you must accept the initial offer. Consider negotiating if:
- You held a high salary or senior-level role.
- You suspect wrongful termination or retaliation.
- You were part of a reduction in force.
- You have a potential legal claim against the company.
Negotiation points may include:
- A higher amount of severance pay
- Employer-covered health insurance premiums
- Removal or modification of restrictive covenants
- More favorable payment structure
Timeframe for Signing a Severance Agreement
The amount of time you have to sign varies by agreement. For employees over 40, federal law requires 21 days to consider and 7 days to revoke under the OWBPA.
Even if you’re not over 40, your employer should give you time to review the agreement. Never sign under pressure. Ask for more time if needed.
Red Flags to Watch For
Before signing a severance agreement, check for these red flags:
- Overbroad release of claims: Could prevent you from filing valid claims.
- Unenforceable non-compete clauses: Some agreements may include vague or overly broad restrictions.
- No mention of COBRA: Ensure health insurance rights are addressed.
- Lack of clarity around bonus pay, stock options, or commissions.
- Confidentiality clause that limits your legal rights or future job prospects.
Why Legal Review Is Important
An employment lawyer can help you:
- Evaluate the legal validity of the terms.
- Determine whether you have grounds for a wrongful termination or discrimination claim.
- Negotiate a better package based on your tenure and position.
- Understand how the agreement impacts your retirement income security.
- Make sure you’re not waiving important rights under federal or state employment law.
The Craighead Law Firm Can Help
Clayton Craighead has extensive experience in employment law, including severance, contracts, and wrongful termination cases. He has represented executives and professionals in disputes involving Fortune 500 companies. Whether you’re reviewing a severance agreement or preparing to negotiate better terms, The Craighead Law Firm can provide clear, experienced legal guidance.
Protect your career and financial future. If you’re a departing employee in Texas, speak with an employment attorney before signing a severance agreement. Call The Craighead Law Firm to schedule a consultation.