Severance Pay in Texas: Are You Entitled?

Federal law does not mandate severance pay for any employer or employee category. The Worker Adjustment and Retraining Notification (WARN) Act, 29 U.S.C. § 2101, requires employers with 100 or more employees to provide 60 days' written notice before plant closings or mass layoffs affecting 50 or more employees at a single site. This notice requirement is the primary federal severance-adjacent protection. The Fair Labor Standards Act (FLSA), 29 U.S.C. § 201 et seq., does not address severance; however, final paychecks must include all earned wages through the last day worked.

Federal tax law, 26 U.S.C. § 409A, governs the tax treatment of severance packages and deferred compensation. Severance payments are treated as wages and subject to federal income tax withholding, Social Security tax (6.2%), and Medicare tax (1.45%). The EEOC enforces Title VII, 42 U.S.C. § 2000e, which prohibits severance discrimination based on protected characteristics (race, color, religion, sex, national origin). The Department of Labor enforces the WARN Act. If severance is offered only to certain protected classes or denied to protected classes, that constitutes discrimination under federal civil rights law.

Texas has no state law requiring employers to provide severance pay upon termination of employment. Texas Labor Code § 61.001 establishes that employment is at-will unless modified by written contract, collective bargaining agreement, or established policy. This means employers may terminate employees with or without cause and without providing severance, unless a specific contractual obligation exists.

If an employer voluntarily offers severance pay or includes severance in an employment contract, that promise is enforceable under Texas contract law. Courts will enforce the plain language of severance agreements. However, employers are free to condition severance on the employee signing a release of claims, non-disparagement clause, non-compete agreement, or confidentiality agreement. Texas courts enforce non-compete agreements if they are reasonable in duration, geographic scope, and line of business (Texas Business & Commerce Code § 5.0061).

Texas does not have a state-level WARN Act equivalent, so the federal WARN Act applies if thresholds are met (100+ employees, 50+ affected employees, 60 days' notice). Texas does not impose any additional notice requirements beyond federal law for plant closings or mass layoffs.

Severance packages may include health insurance continuation (COBRA, 26 U.S.C. § 4980B), which is federal law and applies in Texas as everywhere. Employees in Texas have no state-law right to severance but do have the right to negotiate severance terms before signing any agreement. Any severance payment must include all final wages owed through the termination date; employers cannot deduct from severance to offset prior alleged damages or debts.

Texas courts will not enforce overly broad non-compete agreements attached to severance packages. If a non-compete in a severance agreement is unreasonable in scope, duration, or geographic area, it may be reformed or voided. Employers cannot condition severance on illegal conditions, such as requiring a waiver of workers' compensation rights or wage claims, or a release of statutory discrimination claims without proper legal consideration.

WHEN THE WARN ACT DOES NOT APPLY: Employers with fewer than 100 employees are not subject to federal notice requirements and can conduct layoffs without statutory warning. Sales positions, independent contractors, and temporary workers may be excluded from WARN Act protections depending on classification.

Severance packages that include release-of-claims language may be voidable if the employee was not given adequate time to review and consider the agreement, particularly if the severance offer is presented on the last day of employment. The Older Workers Benefit Protection Act (OWBPA), 29 U.S.C. § 626(f), requires specific statutory language and minimum review periods (21 days for individual severance, 45 days for group reductions) before an employee can waive age discrimination claims as part of a severance agreement.

Employers cannot use severance as retaliation for protected activity (whistleblowing, OSHA complaints, workers' compensation claims). Severance cannot be forfeited based on protected characteristics. If severance is offered to all employees being terminated except those in a protected class, this may constitute discrimination. Severance packages tied to arbitration agreements may limit employee litigation rights but are generally enforceable in Texas.

STEP 1: DOCUMENT THE SEVERANCE OFFER AND TERMINATION CIRCUMSTANCES. Obtain a written copy of any severance offer, including the amount, conditions, non-compete or release language, and deadline for acceptance. Document the date of termination, final paycheck amount, any verbal promises about severance, and communications with HR or management regarding severance. Take screenshots of email offers. Note whether severance was offered to others in your position or only to you; this is relevant to discrimination claims.

STEP 2: UNDERSTAND YOUR RIGHTS BEFORE SIGNING. If presented with a severance agreement, review it carefully. Do not sign immediately, especially if offered on your last day. The OWBPA requires 21 days to consider individual severance agreements and 45 days for group layoffs. Consult an employment attorney before signing if the agreement includes a broad release of claims, non-compete, or confidentiality clause. Ask HR in writing: (1) Is severance mandatory or optional? (2) What happens if I decline? (3) What is the deadline to accept?

STEP 3: FILE A COMPLAINT IF SEVERANCE WAS DENIED OR OFFERED DISCRIMINATORILY. If you believe severance was denied based on age, race, sex, disability, religion, or national origin, file a charge of discrimination with the U.S. Equal Employment Opportunity Commission (EEOC). In Texas, file at the EEOC Dallas Field Office or online at https://www.eeoc.gov/filing-charge-discrimination. The federal deadline is 180 days from the date of the adverse action (no state deferral delay in Texas; EEOC has federal jurisdiction). Include in your charge: (1) your name and contact information, (2) the employer's name and location, (3) the date severance was denied or offered unequally, (4) the protected characteristic you believe motivated the decision (age, race, etc.), (5) names of similarly situated employees who received severance.

If you believe the employer breached a written severance contract or violated the WARN Act, file a civil action in Texas state or federal court. There is no administrative prerequisite. Consult an employment attorney to evaluate statute of limitations (generally 4 years for contract claims, 2 years for tort claims in Texas).

STEP 4: EXPECT EEOC INVESTIGATION. After filing, the EEOC will send you a Notice of Charge to the employer. The employer has 10 days to respond. The EEOC investigator will request documents, including payroll records, severance policies, termination records, and communications about severance decisions. You may be interviewed. Investigation typically takes 60–180 days. At the conclusion, the EEOC will issue a determination of "reasonable cause" or "no reasonable cause." If reasonable cause is found, the EEOC attempts conciliation with the employer. If conciliation fails, you have the right to sue in federal court.

STEP 5: CONSULT AN EMPLOYMENT ATTORNEY. If severance was denied or you face an unfavorable severance agreement with broad release language, consult a Texas employment attorney immediately. An attorney can: (1) evaluate whether a non-compete clause is enforceable, (2) negotiate better severance terms, (3) advise on tax implications, (4) file an EEOC charge or civil lawsuit, (5) represent you in mediation or trial. Many employment attorneys offer free initial consultations. Look for an attorney licensed in Texas with experience in employment discrimination, contract disputes, or wage/severance issues.