Texas Termination & Layoffs
Should a Texas employer offer severance, and what should be in the agreement?
Severance isn't required in Texas, and it isn't charity. When it's done right, it's a business transaction: you pay money to buy certainty. The mistake I see most is employers paying the money and forgetting to buy the certainty.
Last updated: July 12, 2026
Direct Answer
Texas law does not require severance pay — it's a voluntary business decision, and it's usually only worth offering in exchange for a signed release of legal claims. There's no universal "70 rule"; severance amounts vary, often in the range of one to two weeks of pay per year of service. A sound agreement includes a valid, enforceable release, and if the employee is 40 or older it must follow the federal Older Workers Benefit Protection Act — which requires specific consideration periods and a seven-day revocation window to release age-discrimination claims.
What severance actually buys, and what it cannot
The reason to pay severance is to close the door on risk. You're offering money in return for the employee's agreement not to sue — a release of claims — so a dispute you'd otherwise have to defend goes away with a signature. Once you see it that way, the priorities reorder. The dollar amount is negotiable and secondary. The release is the actual product, and an agreement that pays severance without a properly drafted, enforceable release is the worst of both worlds: you've spent the money and kept the exposure.
That's also the answer to "layoff versus severance," which people treat as opposites. They're not the same category. A layoff is the separation decision; severance is an optional payment you may attach to it. You can lay someone off with no severance, or you can offer severance to secure a release and a cleaner exit. The strategic question isn't which one — it's whether, in this particular separation, buying peace is worth the cost.
On the amount, ignore formulas presented as legal rules. There is no legal "Rule of 70" for severance; that phrasing is often confused with retirement-eligibility formulas that add age and years of service. What you offer is a business judgment based on tenure, the level of risk you're retiring, and consistency with how you've treated comparable separations.
| Term | Requirement | Note |
|---|---|---|
| Consideration period, employee aged 40+ | 21 days to consider | Restarts if the final offer is materially changed. |
| Consideration period, group programme | 45 days | Plus a disclosure schedule identifying the job titles and ages of those selected and not selected. |
| Revocation | 7 days, and it cannot be waived | The agreement is not effective until the period expires. |
| Advice to consult counsel | Must be advised in writing | A formality that is routinely omitted. |
| Waiver of future claims | Cannot be waived | Only claims that already exist may be released. |
| Confidentiality and non-disparagement | Must be narrowly tailored or they risk interfering with NLRA section 7 rights | McLaren Macomb remains the operative Board standard. The related General Counsel memorandum was rescinded in February 2025, but GC memoranda do not bind the Board, and an administrative law judge applied McLaren as recently as May 2026. |
| Right to file an agency charge | Cannot be waived | An employee may always file with the EEOC or NLRB; only monetary recovery may be released. |
Confidentiality and non-disparagement are the terms most at risk
The biggest miss is the Older Workers Benefit Protection Act. If you want a release that actually waives age claims from an employee 40 or older, the law requires you to give them time to consider it — generally at least 21 days for an individual agreement, or 45 days when it's part of a group termination program — plus 7 days after signing to revoke. Group programs also require disclosing the ages and job titles of who was and wasn't selected. Employers routinely hand a 40-plus employee a same-day "sign now" severance letter, and in doing so hand them a release that may not hold up on the exact claim they most wanted to release.
The second miss is trying to release things you can't. A severance agreement can't waive an employee's right to file a charge with the EEOC, can't erase wages already earned, and can't sign away unemployment eligibility or, generally, workers' compensation rights. Overreaching language doesn't just fail — it can make the whole release look coercive. A clean agreement releases what's releasable and doesn't pretend to do more.
The third miss is consistency and taxes. Who you offer severance to, and how much, needs to be defensible — offering it selectively in a way that tracks age, race, sex, or protected activity turns a risk-reduction tool into a discrimination claim. And severance is wages: it's reported on a W-2 and subject to withholding, commonly at the 22% federal supplemental rate. There's no clever way to make it "tax-free," and promising otherwise creates a problem later.
Status check, current as of August 2026: the NLRB’s McLaren Macomb decision (21 February 2023) remains the operative Board standard on overbroad confidentiality and non-disparagement terms in severance agreements. A General Counsel memorandum on the subject was rescinded in February 2025, which some commentary read as a reversal — but General Counsel memoranda do not bind the Board, and an administrative law judge applied McLaren as recently as May 2026. Treat narrow tailoring as the working standard.
| Did the employee recently… | Statute | Effect on the decision |
|---|---|---|
| Discuss pay, hours or conditions with coworkers, including online | NLRA section 7 | Protected even with no union present. Discipline here is the classic unforced error. |
| Report discrimination, harassment or safety concerns | Title VII, ch. 21, OSHA | Retaliation is an independent claim that can outlive the underlying complaint. |
| Request or use leave, or an accommodation | FMLA, ADA, PWFA | Use of leave cannot be a negative factor in any decision. |
| File a workers’ compensation claim | Tex. Labor Code ch. 451 | Statutory retaliation claim. |
| Refuse to do something criminal | Sabine Pilot | Narrow, but absolute where the refusal is the sole reason. |
| Participate in an investigation | Title VII, ch. 21 | Participation is protected independently of the outcome. |
| Threaten to sue or contact an agency | Various | The threat itself is often protected opposition. Reacting to it converts a defensible termination into a retaliation claim. |
Where agreements fail
These are the failure points that turn severance from protection into liability:
- Paying severance with no release, or a release too defective to enforce
- Missing OWBPA consideration and revocation periods (and group-disclosure rules) for employees 40+
- Drafting releases that purport to waive non-waivable rights, undermining the whole agreement
- Inconsistent severance decisions that correlate with a protected characteristic or protected activity
- A handbook or past practice that promised severance, creating an obligation you must now honor
- Treating severance as non-wage income or promising it can avoid tax
Check the timing rules before the offer goes out
First, check whether you've already committed. A severance provision in your handbook, an employment agreement, or a consistent past practice can convert "optional" into "owed." Know your starting position before you negotiate. Then identify who's involved: is the employee 40 or older, and is this an individual exit or part of a group action? Those two facts drive the consideration periods and disclosures your agreement must include.
Next, be clear about what risk you're actually retiring. The release should be tailored to the real exposure in this separation and should release only what the law allows. Confirm your amount is consistent with comparable prior separations, and route the release language through qualified employment counsel — a severance agreement is one of the few HR documents where DIY templates regularly fail on the one clause that mattered.
Scores a specific termination decision before the meeting, not after it.
When severance needs counsel
Bring in help whenever the separation carries real risk — a recent complaint, a protected-class or 40-plus employee, a threatened claim, or a group layoff — because those are precisely the situations where severance is worth offering and most likely to be drafted wrong. The value of the payment depends entirely on the strength of the release, and the release is where the technical requirements live.
For Texas employers handling separations without in-house HR or counsel, a short review before you extend an offer ensures the agreement does what you're paying for: closes the risk cleanly, complies with OWBPA where it applies, and stays consistent with how you've treated others.
Related Free Resources
- Employer Decision Risk Scorecard
- HR System Risk Diagnostic
- Texas People Systems Risk Index
- HR Resource Library
Related Services
- HR Compliance Consulting for Texas Employers
- HR Retainer Services for Texas Employers
- HR Audit & Diagnostics Consulting
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Make Sure Your Severance Actually Buys Certainty
Faulkner HR Solutions helps Texas employers decide when severance is worth offering and structure the agreement so the release holds — including OWBPA-compliant terms for older workers and group layoffs. Connect with us before you extend an offer.
This page provides general HR information for employers and is not legal or tax advice. Release requirements and tax treatment are technical and fact-specific; consult qualified employment counsel and a tax professional before finalizing a severance agreement.