Severance & Termination Law Atlas

FLSA · US DOL

Severance is voluntary, not a legal entitlement

• No federal law requires severance. The US DOL calls it “a matter of agreement between an employer and an employee.”
• It becomes enforceable once promised in an offer letter, contract, handbook, collective agreement or plan.
• A formal, ongoing severance program can be an ERISA welfare plan, which brings a written plan document, a summary plan description (SPD) and a claims procedure.

State exceptions: New Jersey, Maine and Hawaii require payments in closings or mass layoffs. See the exceptions section.

29 U.S.C. §2101 et seq.

Federal WARN notice for large layoffs

• Covers employers with 100+ full-time employees.
• 60 calendar days’ written notice before a plant closing (50+ workers at one site) or a mass layoff (50–499 workers who are at least 33% of the site, or 500+).
• A violation costs up to 60 days of back pay and benefits per worker, plus civil penalties for failing to notify local government.
• Exceptions: faltering company, unforeseeable business circumstances, natural disaster.

Sixteen states have their own mandatory “mini-WARN” laws with lower thresholds or longer notice periods.

ADEA as amended by OWBPA

Releases from workers 40 and older

• The release must be written in plain language and refer to the ADEA by name.
• The employee must get 21 days to consider it (45 days in a group program) and 7 days to revoke after signing.
• The employer must advise the employee in writing to consult an attorney.
• It must be supported by consideration beyond anything already owed.
• Group programs must disclose the decisional unit and the ages and job titles of those selected and not selected.

California, Illinois, Minnesota, New York and New Jersey add their own rules. New York has a bill pending that would extend the 21/7-day periods to all ages.

EEOC · SEC 21F-17 · NLRA · Speak Out Act

Rights a release cannot waive

• Filing a charge with the EEOC or a state agency, or taking part in an investigation.
• Whistleblowing to the SEC or other regulators.
• Pre-dispute NDAs about sexual assault or harassment are unenforceable (Speak Out Act, 2022).
• Under the NLRB’s McLaren Macomb decision (2023), broad confidentiality and non-disparagement clauses offered to non-supervisory employees can violate the NLRA. The General Counsel’s guidance memo was rescinded in 2025, but the Board decision hasn’t been overruled and the NLRB applied it again in 2026 (Valley Radiology).
• Unpaid FLSA wages generally can’t be released privately without DOL or court supervision.

COBRA · 29 U.S.C. §1161

Health coverage continuation

• Applies to group health plans of employers with 20+ employees.
• Coverage lasts up to 18 months after termination (up to 36 for some qualifying events).
• The employee can be charged up to 102% of the premium. Many severance packages subsidize this.

Most states have “mini-COBRA” laws for smaller employers, and Connecticut and Massachusetts require employer-paid continuation in closings.

IRS supplemental wages · IRC §409A

Severance is taxed as wages

• Subject to federal income tax withholding, Social Security, Medicare and FUTA, and reported on the W-2.
• Optional flat federal withholding of 22% up to $1M in supplemental wages, and mandatory 37% above that.
• Installment or deferred severance must comply with §409A (separation-pay exemption, or a fixed schedule).

FLSA + state wage-payment acts

Earned wages and final pay

• Earned wages are owed whether or not the employee signs anything. Final pay can’t be made conditional on signing a release.
• Forty-six states set a deadline for final pay. Alabama, Florida, Georgia and Mississippi have no statute, so the regular payday is the norm.
• The most common rule is “next regular payday.” About a dozen states require payment the same day or within 24–72 hours for involuntary terminations.

Final-pay deadlines are the most varied rule between states. Use the explorer’s “Final pay (fired)” lens.

Common law

At-will employment

• Employment is at-will in 49 states. Either side can end it for any lawful reason without notice.
• Common exceptions: public policy (e.g., firing for jury duty or whistleblowing), implied contracts in handbooks or promises, and in some states an implied covenant of good faith.
• Anti-discrimination (Title VII, ADA, ADEA) and anti-retaliation laws apply everywhere.

Montana is the exception. After a probationary period, its Wrongful Discharge from Employment Act requires good cause.

Severance is mandatory in specific cases

The only real exceptions to the "severance is voluntary" rule. All three apply only to layoffs or closings at larger employers.

• NJMass layoffs: 1 week per year of service, uncapped, +4 weeks if notice is short. 100+ employees nationwide, 50+ terminated in NJ.
• MEClosings or mass layoffs at 100+ employee establishments: 1 week per year for employees with 3+ years.
• HIClosings or relocations: up to 4 weeks of wage-minus-UI "dislocated worker allowance."

Employer-paid health continuation

No cash payment, but the employer must keep paying for coverage.

• CTUp to 120 days of fully employer-paid group health coverage on relocation or closure.
• MAContinued group health coverage in qualifying plant closings.

Mandatory mini-WARN laws16 states

Lower headcounts, longer notice, or triggers the federal law misses.

• IALowest threshold: 25 employees, 30 days.
• NY50 employees, 90 days.
• NJ100 employees, 90 days, plus severance.
• ME90 days for closings.
• NENew in 2026: 90 days.
• CA75 employees, any 50-person layoff.
• IL75 employees, 60 days.
• WA50 employees, 60 days (2025).
• WI50 employees, 60 days.
• MD50 employees, 60 days; enforced from Oct 2025.
• VT50 employees; 45 days to state, 30 to workers.
• HI50 employees, 60 days.
• DE100 employees, 60 days.
• NH100 employees, 60 days.
• OHMirrors federal; 2025.
• TNOnly 50 to 99 employee firms; no set period.

Voluntary or limited layoff-notice laws4 states

Encouraged notice, state-only reporting, or narrow triggers.

Release and agreement rules beyond OWBPA

State rules that change how a severance agreement must be drafted or timed.

• CACarve-out language, attorney notice, at least 5 business days; waiver of Civ. Code §1542.
• IL21 days to consider + 7 to revoke when unlawful-practice allegations are kept confidential.
• MN15-day rescission for releases of MHRA claims.
• NY21/7 days for discrimination-settlement NDAs. Pending bill would extend 21/7 to all severance.
• NJNDAs hiding discrimination or harassment details unenforceable against the employee.

Same-day to next-business-day final pay when fired11 states

Paying on the next regular payday isn’t enough in these states. Waiting-time penalties can be large (up to 30 days’ wages in CA, 60 in MO, treble damages in MA).

PTO must be paid out

Required regardless of policy (RI after 1 year; ME at 11+ employees). Another group requires payout unless a written policy says otherwise.

State separation notices22 states

Mostly UI-availability forms that must be handed over at separation. Tennessee (24 hours) and Louisiana (3 days) are the tightest.

Noncompete limits that shape severance terms

Affects whether a non-compete in a severance package is enforceable.

• CAVoid, including out-of-state agreements.
• MNBanned since Jul 2023.
• NDVoid.
• OKGenerally void.
• WYLargely void since Jul 2025.
• WASalary floor now; near-total ban from 30 Jun 2027.
• COSalary floor $130,014 (2026).
• ILVoid at $75,000 or less.
• MA12-month cap + garden leave.

Not at-will, and service letters

Montana needs good cause after probation. Six states make employers give a reason for termination on request.

• MTWrongful Discharge from Employment Act. Also requires a service letter.
• MOService letter (RSMo §290.140).
• KSService letter: tenure, job classification and wage rate.
• MEReason for discharge on request.
• MNReason for termination on written request.
• INLetter stating whether the employee quit or was discharged.

29 U.S.C. §1161 · 20+ employees

Who is covered

• Private employers with 20+ employees (state and local governments via the PHS Act).
• Qualified beneficiaries: the employee, a covered spouse and covered dependent children. Each can elect COBRA independently.
• Termination for any reason except "gross misconduct" (quitting and layoffs included) triggers COBRA.

Qualifying events

How long it lasts

• 18 months: termination or reduced hours.
• 29 months: if SSA finds a beneficiary disabled within the first 60 days. The premium can rise to 150% for months 19-29.
• 36 months for spouse and dependents: the employee’s death, divorce or legal separation, the employee becoming entitled to Medicare, or a child aging out, including as a second event during the first 18 months.

Premium rules

What it costs

• Up to 102% of the full plan cost, employer and employee shares combined. This is the "COBRA shock" after a layoff.
• There’s no federal COBRA subsidy in 2026. The 2021 ARPA subsidy ended in September 2021.

Severance design

How severance interacts with it

• Employers often pay or reimburse several months of COBRA as part of severance.
• Premiums the employer pays directly to the plan are generally not taxable to the employee. Cash given "for COBRA" is taxable wages.
• Subsidized COBRA can delay the move to marketplace coverage but doesn’t close the marketplace window, which runs from the loss of the original coverage.

Termination events

When it ends early

• Unpaid premium after the 30-day grace period.
• The beneficiary gets another group plan after electing COBRA.
• The beneficiary becomes entitled to Medicare after electing COBRA (the spouse’s COBRA continues).
• The employer stops offering any group health plan.

ERISA §502(c)(1)

Notice penalties

• A late or missing election notice can cost the plan administrator up to $110 a day, plus the claims that should have been covered.
• States with mini-COBRA laws have their own notice duties. Some are strict: Oregon’s election window is only 10 days.

Medicare Part B special enrollment

Already 65+ when the job ends

• Anyone who delayed Part B because of job-based coverage gets an 8-month window from the end of employment or coverage, whichever comes first.
• COBRA doesn’t extend this window. Waiting for COBRA to run out leads to a gap and a permanent penalty of 10% per 12 months late.
• Once on Medicare, Medicare pays first and COBRA pays second. The COBRA plan can reduce its payments as if Part B were in place, even if it isn’t.

COBRA + Medicare order

On Medicare before electing COBRA

• Someone already entitled to Medicare when COBRA starts can keep both.
• Becoming entitled to Medicare after electing COBRA ends that person’s COBRA.
• In either case, a spouse under 65 keeps COBRA and may get 36 months.

Medicare supplements

Medigap and drug coverage timing

• The 6-month Medigap open enrollment starts when Part B begins at 65+. During it, insurers can’t price by health history.
• Part D: a gap over 63 days without creditable drug coverage brings a lifetime late penalty. Most COBRA plans count as creditable, but the plan’s notice confirms it.

ACA marketplace

Under 65: individual insurance

• Losing job coverage gives a 60-day special enrollment period, on HealthCare.gov or the state’s own exchange.
• Income for subsidies is projected annual household income. A layoff mid-year can lower it, but a large lump-sum severance counts in the year it’s paid.
• Enhanced subsidies ended 31 Dec 2025, so 2026 subsidies use the original ACA formula, including the 400% federal poverty level cap.

Choosing COBRA voluntarily doesn’t block the marketplace later, but dropping COBRA mid-year outside open enrollment doesn’t open a new window. Running out of COBRA does.

Income-based

Medicaid

• Eligibility is based on monthly income, so someone with no income after a layoff may qualify even with savings, in the 40+ states that expanded Medicaid.
• Severance paid out over time counts as income in the months it’s paid.

FICA

Taxes on Medicare itself

• Severance is subject to the 1.45% Medicare tax (plus 0.9% above $200K) like any wages. That’s the only place "Medicare" touches the severance payment itself.

Independent election rights

Spouse and children on COBRA

• A spouse and children covered the day before the job ended are qualified beneficiaries in their own right. They can elect COBRA even if the employee doesn’t.
• Termination gives 18 months. A second event during that time (divorce, the employee’s death or Medicare entitlement) extends spouse and dependent coverage to 36 months.
• One election notice to the household is allowed only if it goes to an address where the spouse lives.

HIPAA special enrollment

Joining a spouse’s employer plan

• Losing coverage lets the employee and family join a spouse’s employer plan mid-year if they ask within 30 days.
• That’s often cheaper than COBRA, since the spouse’s employer pays part of the premium.

ACA · IRS 2022 rule

Marketplace and the "family glitch" fix

• Since 2023, whether a spouse’s employer plan is "affordable" for the family is judged on the family premium. Family members can get marketplace subsidies even when the spouse’s employee-only coverage is affordable.
• The 60-day loss-of-coverage window covers the whole household.

Medicare + COBRA

When the laid-off employee is on Medicare

• A spouse under 65 has no Medicare of their own, so the spouse needs COBRA, the marketplace or their own job plan.
• If the employee had become entitled to Medicare within the 18 months before the layoff, the spouse’s COBRA can run 36 months from the date of entitlement.

Medicare Part B

When the spouse is still working

• A 65+ employee who loses their job can delay Part B without penalty if covered by a spouse’s employer plan based on the spouse’s current employment (generally at employers with 20+ employees).
• When that spouse retires, the 8-month Part B window starts.

State continuation

State spouse rules

• Illinois: spouse 55+ on the employee’s death, divorce or retirement can continue coverage until Medicare.
• Georgia: spouse 60+ on divorce or death can extend COBRA until Medicare.
• California and New York: extend to 36 months total.

Severance, final pay, WARN notice and unemployment are never affected by the spouse’s job, income or benefits.

Workforce Innovation and Opportunity Act

WIOA Dislocated Worker Program

• The main federal program since TAA ended. Offers career services, individual training accounts to pay for approved courses, and supportive services.
• Open to laid-off workers unlikely to return to their occupation, and to people affected by closings. Apply at an American Job Center.
• It doesn’t provide income support. Unemployment insurance does that.

WIOA · triggered by WARN

Rapid Response

• Every state has a dislocated-worker unit that receives WARN notices and sends a team on site before the layoff, to explain UI, WIOA training and health-coverage options.
• Employers without a WARN duty can request it voluntarily.

FUTA §3304(a)(8)

Unemployment while in training

• Federal law bars every state from denying UI because a claimant is in approved training. The work-search requirement is generally waived.
• This extends eligibility during regular benefits but doesn’t add weeks. For extra weeks, see WA, OR and ME below.

Ended 2022

Trade Adjustment Assistance

• TAA stopped accepting new petitions on 1 July 2022, and Congress hasn’t reauthorized it as of 2026. Only workers certified before then still receive benefits.
• Older guides that point laid-off workers to TAA are out of date.

US DOL

National Dislocated Worker Grants

• Short-term federal grants to states after large layoffs or disasters, for retraining and temporary jobs. States apply for them; individuals don’t.

Coordination

Severance and training money

• Severance generally doesn’t bar WIOA eligibility.
• Whether severance delays UI depends on the state. See the unemployment section. Check with the state UI agency before planning training around UI.