When an employer stops paying severance or otherwise fails to honor a severance agreement, that agreement is a binding contract and you can enforce it: document what the employer promised and what it did instead, send a certified written demand, and then use whichever enforcement path your agreement requires, whether that is arbitration, an ERISA appeal, a state wage claim, or a lawsuit. One point most people miss up front: if the breach is serious enough, you may also be released from the claims you waived when you signed, which is often your strongest lever.
Know Whether You Actually Have a Breach
A breach happens when the employer fails to do what the agreement requires. The obvious versions are stopping severance payments, paying less than promised, missing a scheduled payment date, or failing to maintain the health insurance coverage the agreement committed to. Subtler ones count too: giving you a negative reference when the agreement calls for a neutral one, or disclosing the terms in violation of a mutual confidentiality clause.
Not every breach carries the same weight. Courts distinguish material breaches from minor ones. A material breach substantially defeats the purpose of the agreement; skipping a severance payment is clearly material, while a one-day delay in processing paperwork probably is not. Courts look at how much you were deprived of the expected benefit, whether money can adequately compensate the shortfall, and whether the employer is likely to cure the problem. Good faith matters as well: an honest administrative error is treated very differently from a deliberate refusal to pay.
The distinction matters because a material breach may release you from your own obligations under the agreement, including any claims you waived. That is a powerful bargaining chip, and it is one reason employers often move quickly to fix mistakes once a lawyer sends a demand letter.
Health insurance breaches deserve close attention because losing coverage creates immediate, tangible harm. Many severance agreements have the employer paying your COBRA premiums for a set number of months. COBRA gives you the right to continue your employer’s group health plan for up to 18 months after termination, but you only have 60 days from the qualifying event to elect coverage.1Centers for Medicare & Medicaid Services. COBRA Continuation Coverage Questions and Answers If the employer promised to pay those premiums and stops, the coverage gap can cause real financial damage fast.
Build Your Evidence File Before You Act
Strong claims fall apart when the employee cannot prove what was promised or what went wrong. Before contacting the employer or a lawyer, gather:
- The signed agreement itself. If you do not have a copy, request one immediately. Every term the employer is violating needs to trace back to specific language in the document.
- Payment records. Bank statements, pay stubs, and deposit records showing what you actually received versus what the agreement promised. If payments stopped on a certain date, your bank records pin down exactly when.
- Correspondence. Emails, text messages, letters, and voicemails discussing the agreement, modifications, or the breach. An HR contact acknowledging a missed payment in writing is valuable.
- Insurance documentation. Explanation of Benefits statements, pharmacy rejection notices, or COBRA election notices can all show when coverage lapsed.
- A timeline. Write down what happened and when while it is fresh: payments received, payments stopped, conversations with HR or management, and any reasons the employer gave.
Keep originals. Do not rely on workplace email access you might lose. Forward relevant emails to a personal account or print them while you still can.
Send a Written Demand First
Your first move should be a formal written demand, not a lawsuit. A demand letter puts the employer on notice, creates a paper trail, and often resolves the dispute without litigation. Many severance breaches come from internal confusion or bureaucratic failure rather than malice, and a clear letter from you or your attorney is enough to get payments restarted.
The letter should identify the specific agreement provisions being violated, describe the breach with dates and dollar amounts, state what you expect the employer to do (pay the overdue amount, reinstate coverage), and set a reasonable deadline for compliance, typically 10 to 14 days. Keep the tone professional and factual. Threats undermine your credibility; the facts do the work.
Send the letter by certified mail with return receipt requested. The return postal receipt serves as legal proof of delivery,2eCFR. 45 CFR 1149.16 – What Constitutes Proof of Service which matters if the employer later claims it never received it. Send a copy by email as well so there is an electronic timestamp.
Read the Dispute Resolution Clause
Before planning a courthouse strategy, read the dispute resolution section of your agreement carefully. Many severance agreements include mandatory arbitration clauses that require you to resolve disputes through a private arbitrator rather than filing a lawsuit. The Supreme Court has repeatedly upheld arbitration agreements in employment contexts under the Federal Arbitration Act, so these clauses are almost certainly enforceable.
Arbitration is not necessarily worse than court. It is usually faster, less formal, and sometimes less expensive. But it does limit your options: discovery is more restricted, there is typically no jury, and appeal rights are narrow. If your agreement includes an arbitration clause, filing a lawsuit may get dismissed with the court directing you to arbitrate instead. Some agreements also require mediation as a first step, where a neutral third party helps both sides reach a voluntary settlement.
If the agreement is silent on dispute resolution, you retain the right to file in court. Either way, the demand letter step comes first.
When ERISA Changes the Process
Some severance arrangements qualify as employee welfare benefit plans under the Employee Retirement Income Security Act. When they do, ERISA preempts state contract law and moves the dispute into federal territory, which changes the rules significantly.
Not every severance deal falls under ERISA. The key question is whether the employer’s severance program involves an “ongoing administrative scheme” rather than a one-time payment. A lump-sum severance check paid at termination probably is not an ERISA plan. A structured severance program that requires the employer to evaluate eligibility on a case-by-case basis, involves periodic payments over many months, and applies whenever the company terminates employees likely does qualify.
If ERISA applies, you generally must exhaust the plan’s internal appeals process before filing a federal lawsuit. The statute requires every ERISA plan to provide written notice of any claim denial, including specific reasons, and to offer a full and fair review of that denial.3Office of the Law Revision Counsel. 29 USC 1133 – Claims Procedure Once you exhaust the internal process (or can demonstrate an appeal would be futile), you can bring a civil action to recover benefits due under the plan.4Office of the Law Revision Counsel. 29 USC 1132 – Civil Enforcement
Skipping the internal appeal when ERISA applies can get your case dismissed entirely. If your severance appears to be part of a formal company plan rather than a one-off negotiated agreement, consult an employment attorney before filing anything in court.
Consider a State Wage Claim
In some states, unpaid severance can be treated as unpaid wages, which opens a faster and cheaper enforcement route through your state labor department or wage commission. State wage claim processes are typically free to file, involve government investigators, and can result in penalties beyond the unpaid amount.
Whether your state treats severance as wages depends on the circumstances. States are more likely to classify it as wages when the obligation comes from a written contract, a formal company policy, or a consistent past practice. If the severance was purely discretionary with no written commitment, most states will not classify it as wages. The rules vary enough that it is worth calling your state’s labor agency to ask whether it will accept the claim before investing time in the paperwork.
A wage claim does not prevent you from also pursuing other remedies, but if the agency takes your case, it puts government pressure on the employer at no cost to you.
Court Remedies If It Comes to That
If the demand letter and administrative options do not resolve things, litigation is the backstop. A breach of severance agreement is fundamentally a breach of contract claim, and courts have several remedies available.
Monetary Damages
The most common remedy is money designed to put you where you would have been had the employer honored the deal. If severance payments were withheld, that means the unpaid balance plus interest. If the employer’s failure to maintain health coverage forced you to pay out-of-pocket medical expenses or buy your own insurance, those costs can be recovered as consequential damages.
Specific Performance
Sometimes money alone does not fix the problem. If the employer was supposed to continue your health insurance and stopped, a court can order the employer to actually perform that obligation. Courts are more willing to order specific performance when the obligation involves something difficult to replace, like group health coverage you could not obtain on the individual market at a comparable price.
Liquidated Damages
Some severance agreements include a liquidated damages clause that specifies a preset amount the employer owes if it breaches. These clauses are enforceable as long as the amount is a reasonable estimate of anticipated harm and is not designed to punish the employer. When present, they simplify the damages calculation and often motivate quick settlement.
Punitive Damages
Punitive damages are rare in straight breach-of-contract cases. Most jurisdictions will not award them unless the breach also amounts to an independent tort, such as fraud or intentional misrepresentation. If the employer deliberately lied about its intention to pay severance in order to induce you to sign the release, that crosses into territory where punitive damages become possible. This is the exception, not something to count on.
Attorney’s Fees
Check whether your agreement includes a fee-shifting provision allowing the prevailing party to recover attorney’s fees. If it does, the employer faces the prospect of paying your legal bills on top of the severance it already owes, which creates powerful settlement pressure. Some states also allow fee recovery when the employer’s conduct was particularly egregious.
For smaller severance amounts, small claims court may be an option. Jurisdictional limits vary by state but generally range from $5,000 to $15,000. You do not need a lawyer for small claims, and the process is faster and less formal than a full civil lawsuit.
The Leverage Most Employees Miss
If you signed a severance agreement that included a release of legal claims against the employer, and the employer then breached the agreement, you may be able to argue that the release is no longer binding. The reasoning is straightforward: the release was part of a bargained exchange, and if the employer did not hold up its end, you should not be bound by yours.
This matters most if you had viable claims before signing, such as discrimination, retaliation, or wrongful termination claims you gave up in exchange for severance. An employer who realizes its breach could revive those claims has strong motivation to cure the problem quickly. Say so directly, or through counsel, in your demand letter.
Extra Protection If You Are 40 or Older
If you are 40 or older, the Older Workers Benefit Protection Act requires your employer to meet specific conditions before your waiver of age discrimination claims counts as valid. The waiver must be written in plain language, must specifically reference rights under the Age Discrimination in Employment Act, must give you new consideration beyond what you were already entitled to, must advise you in writing to consult a lawyer, must give you at least 21 days to consider (45 days for group layoffs), and must allow at least 7 days after signing to revoke.5Office of the Law Revision Counsel. 29 USC 626 – Recordkeeping, Investigation, and Enforcement If the employer skipped any of these steps, the waiver may be unenforceable, giving you significant leverage.
There is also a specific protection that works in your favor when a payment dispute breaks out. The EEOC has stated that an employer cannot stop making promised severance payments or withhold benefits it already agreed to, even when the employee challenges the validity of the waiver.6U.S. Equal Employment Opportunity Commission. Q&A – Understanding Waivers of Discrimination Claims in Employee Severance Agreements If the employer cuts off payments in retaliation for you questioning the agreement, that itself becomes an additional violation.
Watch the Filing Deadline
Every breach-of-contract claim has a filing deadline, and missing it means losing your right to sue entirely. For written contracts like severance agreements, the statute of limitations ranges from 3 years in states like Maryland, New Hampshire, and Tennessee to 10 years in states like Illinois, Indiana, Iowa, and Louisiana. The majority of states fall in the 4-to-6-year range. The clock typically starts running when the breach occurs, not when you discover it, so delays cost you.
If ERISA applies to your severance plan, the timeline may be different. Federal courts have their own limitations periods for ERISA claims, and the plan document may specify a contractual limitations period shorter than the state default. Do not assume you have years to act. Send your demand letter within weeks of the breach, not months.