📅 2026 Update: Key Changes in Severance and Employment Law

Since the original article was written, several important changes have occurred in severance and employment laws. These updates affect minimum wage, employment agreements, and contract processing times. The information in the original article continues further down the page, providing a solid foundation on severance.

🆕 💰 Minimum Wage Increase

On February 9, 2026, the U.S. Department of Labor announced a minimum wage increase for federal service contracts. Starting May 11, 2026, the wage for non-tipped employees will rise to $13.65 per hour.

Tipped employees will see their minimum wage go to $9.55 per hour. This change affects many workers and can influence severance calculations for federal contractors.

🗽 🚫 New York's "Trapped at Work Act"

On December 19, 2025, New York enacted the "Trapped at Work Act." This law prohibits "employment promissory notes" that require employees to repay employers if they leave before a set date. It takes effect on December 19, 2026, and excludes directors, independent contractors, and consultants. This change can impact how severance agreements are structured.

🔄 ⏳ Contract Processing Times

The University of Texas has updated its contract processing times. For example, template contracts without changes can be signed within 10 business days. However, vendor contracts take up to 15 business days.

Understanding these timelines can help when negotiating severance agreements involving contracts.

📅 📩 Discretionary Amendments Deadline

For those involved in retirement plans, the deadline for discretionary amendments related to the SECURE and SECURE 2.0 laws has been extended until December 31, 2026. This is important for employers considering how severance pay may interact with retirement benefits.

📌 Key Points Summary

  • 🔼 Minimum wage for federal contractors increases on May 11, 2026.
  • 🚫 New York's law prohibits certain repayment agreements effective December 19, 2026.
  • ⏳ University of Texas has updated contract processing times.
  • 📅 Discretionary amendments deadline for retirement plans extended to December 31, 2026.

💡 Tips for Understanding Severance

Reviewing your specific situation with an attorney is essential to understanding your rights and options.

📝 📄 Understand Your Rights

Be aware of your rights regarding severance pay. Federal and state laws may provide protections that affect how much severance you should receive.

📝 🤝 Review Employment Contracts

Before signing any severance agreement, review your employment contract. Look for clauses that may affect your severance package and obligations.

📝 ⏰ Know the Timelines

Understand the timelines for contract processing with your employer. This can help you plan your next steps and negotiations more effectively.

📝 📊 Consider Impact on Benefits

When negotiating severance, consider how it may affect your other benefits, like health insurance. Ensure you understand what happens to those benefits after your employment ends.

📝 📈 Compare Offers

If you receive multiple job offers, compare them carefully. Assess how severance packages differ and how they may impact your financial future.

🏆 Severance Services Ranked by User Reviews (2026)

This section highlights services related to severance and employment law based on user reviews. These services can assist with legal document creation, business formation, and more. The rankings are based on Trustpilot data verified in October 2026.

Remember, star ratings can change over time, and different experiences can affect ratings.

🥇 1. Rocket Lawyer

Rocket Lawyer holds a Trustpilot score of 4.5. It has been known for its online legal document creation and e-signature services. However, some users have noted issues with its subscription model, which can lead to unexpected charges.

🥈 2. LegalZoom

LegalZoom has an average Trustpilot score of 4.6. It is recognized for its business formation services and legal document preparation. Some reviewers report delays and scheduling conflicts, which could affect timely access to severance-related documents.

🥉 3. FormPros

FormPros has achieved a Trustpilot score of 4.8. It is known for generating paystubs, tax forms, and offering business formation services. Users have mentioned some responsiveness issues with customer support, which can be a concern when needing immediate assistance.

🆓 Free Government Resources

For those seeking free help, the U.S. Department of Labor provides resources on employment laws, including severance. The New York Attorney General's Office also offers information on workers' rights and employment agencies, which can be beneficial for employees navigating severance agreements.

🔎 Comparing Severance Services

  • 🔍 User ratings: Check Trustpilot scores for reliability.
  • 📄 Services offered: Ensure services align with your needs.
  • 💲 Cost structure: Understand whether fees are fixed or based on subscriptions.
  • 📞 Customer support: Look for responsiveness and availability of help.

❓ Frequently Asked Questions

❓ What is severance pay?

Severance pay is compensation given to employees upon termination. It can be based on the employee's salary, length of service, and company policy.

❓ How is severance calculated?

Severance calculations can vary by company. Factors typically include the employee's length of service and salary, along with any applicable state or federal laws.

❓ Can severance be negotiated?

Yes, severance can often be negotiated. Employees may discuss terms like the amount of pay, benefits continuation, and other conditions before signing an agreement.

❓ What happens if I refuse a severance package?

Refusing a severance package may impact your eligibility for future benefits. It is advised to consult with an attorney before making such a decision.

❓ Are there tax implications for severance pay?

Yes, severance pay is generally considered taxable income. Employees should understand how it will affect their overall tax situation.

❓ What rights do I have if I am laid off?

Employees laid off may have rights under federal and state laws, including unemployment benefits and potential severance pay, depending on the employer's policies.

⚖️ Recent Court Cases Related to Severance

Recent court rulings have addressed various issues related to severance and employment law. These cases help clarify employee rights and employer obligations in severance agreements.

For more information, feel free to browse more rulings on the news page.

End of October 2026 Update






 



 



What is Severance?

Severance: A Brief Guide


Severance (often referred to as a severance package) is pay and/or benefits that an employee receives upon termination or leave. In essence severance is a departing gift, offered to an employee who is let go for reasons that stray away from a breach of the employee’s contract. As a result, severance is not awarded to an employee if he or she violates the terms in their contract; for instance, if an employee habitually misses work, without an excuse, the individual may be fired without receiving severance. Furthermore, if an employee does not perform well at his or her work they may not be awarded severance. The transfer of severance; however, is typically up to the employer. This right enables the employer to distribute severance based on their particular evaluations.



Although severance may not be awarded at the leave of employment, the majority of lay-offs (company-wide firings as a result of macro-economic factors or a failing business model) are met with the delivery of severance packages. For example, when the recession of 2008 struck the financial sector, a number of investment backs--due to failing investments in real estate, a tumbling stock price etc.—had to fire massive groups of employees. These individuals, who were in all likelihood receiving healthy compensation, were in most cases, awarded severance. As stated before, the willingness to offer severance is widely up to the discretion of the employer; furthermore, the amount of compensation and other forms of finances will differentiate based on the particular severance package.



What does a Severance Package typically include?



The majority of severance packages will offer the employee a portion of the individual’s pay; for example, if an employee is let go the individual



l, in a hypothetical situation, may be offered 3 months at their base pay, plus an extended healthcare coverage or stock options. In addition to the employee’s remaining regular pay, a severance package may include some of the following benefits:



• An additional payment based on months of employment



• Payment may be awarded for unused vacation time or sick leave



• Payments in lieu of a required notice period



• The extension of medical, dental or life insurance



• The delivery or liquidation of retirement benefits, for example, the employee’s 401k



• The issuance of stock options



• The delivery of resources to help the employee find new work, including access to employment services or help in modifying the employee’s resume.



When is a Severance Package Offered?



As stated earlier, severance packages are most often offered to employees who were laid off or retired. Severance pay was instituted to help protect the newly unemployed; the package is similar to unemployment compensation, except that it is not publicly funded. Policies for severance pay are typically elucidated upon the company’s respective employee handbook—in many countries the distribution and subsequent acceptance of severance is subject to strict government regulation. In most severance packages, the severance contract will stipulate that the employee shall not sue the employer for wrongful termination or attempt to collect unemployment insurance—if the employee does not adhere to these policies they will be forced to return their severance pay.