Introduction
The United States operates under the doctrine of at-will employment, meaning either party can end the employment relationship at any time, for any reason not prohibited by law (such as discrimination). There is no federal statutory severance requirement. However, the practical cost of layoffs includes WARN Act compliance, COBRA health insurance continuation, customary severance packages, and various supplementary benefits. Several states have their own notice requirements that exceed federal standards.
Despite the at-will doctrine, employers routinely offer severance packages to secure releases of claims, protect confidential information, and maintain employer brand reputation. This guide covers the key obligations and common practices.
WARN Act and State Notice Requirements
The federal WARN Act (Worker Adjustment and Retraining Notification Act) requires 60 days' advance written notice for plant closings affecting 50+ employees or mass layoffs affecting 500+ employees (or 50-499 employees comprising 33% of the workforce) at a single site. Failure to provide WARN notice can result in liability for 60 days of back pay and benefits for each affected employee.
Several states have 'mini-WARN' acts with stricter requirements. California's Cal-WARN applies to layoffs of 50+ employees regardless of workforce percentage. New York's WARN requires 90 days' notice. New Jersey's WARN applies to 50+ employees and requires 90 days' notice plus one week of severance per year of service.
COBRA Health Insurance Continuation
Under COBRA, employers with 20+ employees must offer departing employees the option to continue group health coverage for up to 18 months (36 months in some cases). While the employee is responsible for the full premium plus a 2% administrative fee, many employers subsidize COBRA costs during the severance period. Typical employer subsidies cover 3-12 months of premiums at a cost of USD 500-2,000 per employee per month.
Smaller employers not subject to federal COBRA may be covered by state continuation laws, which vary widely. California's Cal-COBRA extends to employers with 2-19 employees.
Common Severance Practices
While not legally required (except in certain state-specific situations), severance is standard practice in American business. Common formulas include 1-2 weeks' base salary per year of service, with minimums of 2-4 weeks. Executive severance typically ranges from 6-24 months. Severance is almost always conditioned on the employee signing a general release of claims, including age discrimination claims under the OWBPA (which requires a 21-day consideration period and 7-day revocation period).
Additional common benefits include outplacement services (USD 3,000-10,000), career transition coaching (USD 5,000-15,000), extended EAP access (USD 200-500/month), and reference letters. For equity-compensated employees, accelerated vesting and extended exercise periods are common negotiating points.
Summary of Termination Costs
For a US employee with 5 years of service earning USD 100,000/year: severance at 2 weeks/year = USD 19,230 (10 weeks). COBRA subsidy for 6 months at USD 1,500/month = USD 9,000. Outplacement services = USD 5,000. Total approximately USD 33,000-35,000 per employee. For mass layoffs, WARN Act compliance adds planning and legal costs.
State-specific obligations can significantly increase costs. The Msure Layoff Calculator helps model US termination costs across all 50 states, including state-specific WARN requirements, severance benchmarks, and benefit obligations.
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