When losing a job, many employees expect to receive severance pay as part of their departure.
This financial cushion can help bridge the gap while searching for new employment.
However, severance pay isn’t always guaranteed.
The availability and requirements for severance compensation vary significantly across the United States, and understanding your rights depends largely on where you work.
Only a handful of states mandate severance under specific circumstances, while most leave it to employer discretion or contractual agreements.
This blog explains which states require severance pay, when those requirements apply, and what you should know about protecting your rights when employment ends.
What is Severance Pay?
Severance pay is money an employer gives an employee when the job ends, usually due to layoffs, restructuring, or position elimination.
It acts as short-term financial support to help the employee manage expenses while searching for new work.
The amount can vary based on company policy, length of service, or employment agreements.
See What is Severance Pay? for a quick explanation of how severance is defined and why it matters.
Do Any States Legally Require Severance Pay?
No, most U.S. states do not require severance pay by law.
Unlike final paychecks or accrued vacation time, severance compensation typically falls outside the scope of mandatory employment requirements.
In most states, severance pay is based on company policy or negotiated agreements rather than legal mandates.
Employers offer these packages voluntarily through employment contracts, collective bargaining agreements, or workplace policies.
The decision depends on the employer’s resources, industry standards, and relationships with departing employees.
However, a few states require severance in specific situations involving plant closings, mass layoffs, or violations of state WARN Act notice requirements.
Federal Rules: How the WARN Act Affects Severance
The federal WARN Act doesn’t mandate severance pay directly, but it creates financial obligations that function similarly when employers fail to comply with notice requirements.
Understanding these protections is essential since they apply nationwide.
Key WARN Act requirements include:
- Notice Requirement: Employers must provide 60 days’ written notice before mass layoffs or plant closings
- Coverage: Applies to sites with 100 or more workers when layoffs affect 50 or more employees
- Penalty for Non-Compliance: Employers who fail to give proper notice must compensate employees for lost wages and benefits during the notice period they should have received
- Compensation Amount: Covers up to 60 days of back pay plus the cost of any benefits employees would have received
- Purpose: Acts as a penalty for non-compliance while providing economic protection for affected workers
What States Require Severance Pay?
While most states don’t mandate severance pay, a few have laws requiring it under specific circumstances.
These rules typically apply to large-scale layoffs, plant closings, or WARN Act violations.
| State | Severance Requirement | When it Applies |
|---|---|---|
| Maine | Required | Plant closings/relocations affecting 100+ employees |
| Massachusetts | Required | WARN Act violations (failure to give 60-day notice) |
| New Jersey | Required | Mass layoffs at establishments operating 3+ years |
| Illinois | Required (Public Sector Only) | Certain public employees under specific statutes |
1. Maine
Maine law requires severance for employees affected by certain large-scale layoffs or plant closings.
When an employer relocates or terminates operations at a covered establishment, affected employees may be entitled to severance payments.
Employers must provide one week of pay for each year worked.
The law applies to establishments with 100 or more employees when operations cease or relocate more than 100 miles away.
Eligibility depends on employment duration and the size of the workforce reduction.
2. Massachusetts
Massachusetts requires severance only when an employer violates the WARN Act by failing to give the required layoff notice.
When employers conduct mass layoffs or plant closings without providing the mandated 60-day advance notice, they become liable for compensation.
Employees can receive up to 60 days of back pay and benefits when proper notice isn’t given.
The requirement applies to businesses with 50 or more full-time employees conducting layoffs affecting 50 or more workers.
3. New Jersey
New Jersey provides mandatory severance under the updated state WARN Act for covered mass layoffs.
The state’s Millville Dallas Airmotive Plant Job Loss Notification Act creates specific severance obligations for qualifying terminations.
Employers conducting mass layoffs at establishments operating for at least three years must provide severance pay.
Eligible employees receive one week of severance for each year of service, up to a maximum of 26 weeks.
The law covers private-sector employers with 100 or more full-time employees.
4. Illinois
Illinois requires severance for certain public employees under specific statutes, particularly those in education and government positions.
These requirements stem from collective bargaining agreements and state employment laws governing public sector workers.
Private-sector employees in Illinois are not covered by mandatory severance laws.
Private employers can offer severance voluntarily but face no state-level legal requirement absent contractual obligations.
| Other States With Indirect Requirements
Most other states, including California, New York, Texas, Florida, Pennsylvania, Ohio, Michigan, Georgia, North Carolina, and Virginia, have no mandatory severance laws but enforce contractual promises. When employers establish severance policies in handbooks, offer letters, or union agreements, these commitments become legally binding. Workers should review their employment documentation to understand promised benefits. |
How is Severance Pay Typically Calculated?
Most employers calculate severance using a standard formula: one to two weeks of pay per year of service.
An employee with five years of tenure would receive five to ten weeks of compensation under this approach.
Factors that influence severance amounts include:
- job level
- salary
- position within the company
- reason for termination
- industry norms
Senior executives typically negotiate larger packages, while entry-level employees receive smaller amounts.
Beyond cash payments, severance packages often include continuation of health insurance through employer-paid COBRA subsidies, payout of unused vacation or sick time, career transition or outplacement services, extended access to company resources, and professional reference letters.
These additional benefits can significantly increase the total value of a severance package.
If you’re curious how severance grows with tenure, visit Typical Severance Package for 20 Years of Service.
When Employers Must Provide Severance?
Several circumstances make severance legally binding regardless of state laws:
- Employment contracts that specifically promise severance create enforceable obligations. If your signed agreement includes severance terms, the employer must honor those provisions when termination occurs under the specified conditions.
- Collective bargaining agreements negotiated by unions often include detailed severance provisions. These negotiated benefits protect workers through contractually guaranteed compensation packages that employers cannot unilaterally change or deny.
- Company policies or employee handbooks that establish severance programs create binding commitments. Courts generally hold employers to policies they’ve published and communicated to employees, treating these documents as implied contracts.
- Cases involving discrimination or legal settlements may result in severance as part of resolution agreements. When employers settle disputes over wrongful termination, discrimination claims, or other employment violations, severance often forms part of the negotiated settlement terms.
Conclusion
Only Maine, Massachusetts, New Jersey, and Illinois mandate severance pay under specific circumstances, like plant closings or mass layoffs.
For most workers, severance depends on employment contracts, company policies, or negotiations.
Knowing federal WARN Act protections and your state’s requirements helps you know what to expect.
If facing termination, consult an employment attorney to review any severance agreements before signing.
Have you received severance pay in your state?
Share your experience in the comments below to help others understand what to expect during job transitions.
Frequently Asked Questions
Can My Employer Require Me to Sign a Non-Compete Agreement to Receive Severance Pay?
Yes, employers can condition severance on signing a non-compete or non-disclosure agreement. However, enforceability varies by state. California bans most non-competes, while others enforce them with restrictions. Have an attorney review any agreement before signing.
Is Severance Pay Taxable Income?
Yes, severance pay is fully taxable and subject to federal income tax, Social Security tax, and Medicare tax. Your employer will withhold taxes and report them on your W-2. Consider consulting a tax professional if the amount is substantial.
How Long Do I Have to Accept or Reject a Severance Offer?
If you’re over 40, federal law gives you at least 21 days to consider offers involving age discrimination waivers (45 days for group terminations). For other situations, timeframes vary, but you can typically negotiate for additional review time.
