Severance Frameworks: The Math, the Law, and the Signal
What severance actually is in different jurisdictions, how HR leaders design a defensible framework, and the trade-offs between formulas, discretion, and…
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- Severance is part legal minimum, part contractual, part discretionary signal.
- Build a framework before you need it — discretion at the moment is the source of unfairness.
- Statutory minimums vary 10x by jurisdiction; never use the US as your default mental model.
- Enhanced severance buys releases, narrative, and alumni goodwill.
- Tie release agreements to enhanced amounts only — never to statutory minimums.
Severance is one of the few HR topics where the right answer depends almost entirely on the law of the country the employee works in. Frameworks that work in the US fail badly in France; frameworks that work in India under-deliver in Germany. An HR leader's job is to build a layered framework that survives every jurisdiction in scope.
The three layers of severance
- 1Layer 1 — Statutory minimumWhatever local law requires. Not negotiable. Paid regardless of whether the employee signs anything.
- 2Layer 2 — Contractual entitlementAnything specified in the employment contract or applicable collective agreement (often the case in EU, parts of Latin America).
- 3Layer 3 — Enhanced severanceDiscretionary uplift the company chooses to offer, typically in exchange for a signed release / waiver of claims.
What jurisdictions mandate
| Jurisdiction | Typical statutory baseline | Notes |
|---|---|---|
| United States (federal) | None for individual terminations | WARN Act notice required for mass layoffs >50; some states extend |
| United Kingdom | Statutory redundancy after 2 years' service, formula-based | ACAS-aligned process required |
| Germany | No statutory minimum, but 'social plan' for collective dismissals + Kündigungsschutz protections | Works council involvement often required |
| France | Indemnité de licenciement: ~1/4 month per year up to 10 yrs | Strict procedural rules; ample tribunal exposure |
| India | Retrenchment compensation under IDA: 15 days per year of service | Notice and government permission required at scale |
| Brazil | FGTS fine of 40% on prior contributions for unfair dismissal | Plus notice period and accrued vacation |
Designing an enhanced formula
- 1Base2 weeks of base salary per year of service
- 2FloorMinimum 8–12 weeks regardless of tenure
- 3CeilingOften capped at 26–52 weeks to avoid runaway packages
- 4BenefitsHealthcare continuation for the severance period (or local equivalent)
- 5OutplacementCareer-transition support from a recognised provider for 3–6 months
Release agreements
Releases (or 'waivers') are legal agreements where the employee waives the right to sue in exchange for the enhanced amount. The discipline: never tie a release to amounts the employee is legally entitled to anyway (statutory or contractual). The release attaches only to the enhanced layer. Older employees in the US (40+) get additional protections under the OWBPA — confirm timing, revocation windows, and consideration period with counsel.
Edge cases and equity
- Equity: vested options usually have 90-day post-termination exercise windows. Some companies extend to 10 years — material employee-experience signal, has tax implications.
- Bonus: pro-rated to last-day-worked is standard; some companies pay full target for the severance period.
- Sales commission: pay earned-through commission and any deal-in-flight accelerators per plan.
- International transfers: severance and notice obligations follow the country of employment, not the country of the entity that issued the offer.
- PIP-in-flight: never use severance to short-circuit a procedurally required performance process unless counsel has signed off.
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