Colorado does not require employers to provide severance pay. However, once a severance package is offered, the employer is legally prohibited from rescinding the offer unless and until (1) it is rejected or a counteroffer is made, or (2) the consideration period for the offer expires. This is true whether the offer appears in a contract, company policy, or a severance agreement. The employer may not rescind the offer during the period the employee is provided to consider the severance offer, even if no agreement has yet been signed by the former employee. Knowing how to craft or respond to a severance offer determines whether a departure goes smoothly or ends in a dispute. Baker Law Group, PLLC assists employers and employees across Colorado with severance reviews, negotiations, and enforcement.
What Is Severance Pay in Colorado?
Severance pay is compensation offered when employment ends. It may take the form of a lump-sum payment, continued salary, or extended health benefits. Often, severance packages combine more than one of these options.
In Colorado, severance pay is not mandated by state law. Whether an employee receives severance depends on whether the employer and employee have an agreement to provide severance at the time of the employee’s separation. Such an agreement may be made in advance of separation, such as through an employment contract or company policy, or it can be made through terms negotiated at the time employment ends. Employers often offer severance to maintain goodwill or reduce litigation risk. In exchange, employees are frequently asked to sign an agreement waiving their right to pursue certain legal claims against the employer.
Is Severance Pay Required in Colorado?
No. Colorado has no statute requiring employers to provide severance pay. The obligation arises only when an employer promises it in writing. That promise may appear in an employment contract, a company policy, or a collective bargaining agreement. It may also arise from a separate severance agreement signed at the time of termination.
Once a severance obligation exists in writing and is agreed to by both parties, Colorado law treats it as a binding contract. An employer who offers severance and then fails to deliver it can face a breach of contract claim. For that reason, both parties benefit from clearly defined written terms before signing anything.
What Should a Colorado Severance Agreement Include?
A severance agreement is a legal contract. Its terms define what benefits each party receives in exchange for the rights each side gives up. A properly drafted agreement typically covers the payment amount and timeline. It also addresses the release of specific legal claims, confidentiality obligations, and non-disparagement language. Restrictions on the employee’s ability to seek future employment with the employer may be included as well.
Each provision can affect an employee’s legal options, job prospects, and finances. For that reason, employees should consult a Colorado employment attorney before signing. Terms that appear standard may contain restrictions that are difficult to reverse.
Legal Requirements for Colorado Severance Agreements
The specific terms of a severance package are generally negotiable. However, federal and state law impose requirements that limit what agreements can include.
Employees aged 40 or older receive special protections under the federal Older Workers Benefit Protection Act, a nationwide law that applies regardless of which state the employment relationship is based in. Anyone waiving their right to pursue claims under the Age Discrimination in Employment Act (“ADEA”) against the employer must receive at least 21 days to review the agreement before signing and consult with an attorney, but they are not required to use the full 21-day consideration period prior to signing. After signing, that employee must be provided an additional seven days in which they are permitted to revoke their waiver of their right to pursue ADEA claims. Neither party may waive or shorten the seven-day revocation period.
Colorado employers must also ensure that non-compete language complies with Colorado’s non-compete statute C.R.S. 8-2-113. Recent changes to Colorado law significantly limit these restrictions. Most restrictive covenants are unenforceable unless they meet strict criteria tied to job duties and compensation level. Including an overly broad non-compete clause does not just make it unenforceable. It can also expose the employer to legal and financial liability.
Severance agreements in Colorado must also comply with Colorado’s Protecting Opportunities and Workers’ Rights (“POWR”) Act. The POWR Act sets requirements for any agreement that limits the employee’s ability to disclose or discuss any alleged discriminatory or unfair employment practice, such as agreements that contain confidentiality or non-disparagement clauses. Among other requirements, the POWR Act states that any provision limiting disclosure must apply equally to all parties to the agreement, that certain carveouts must be provided to enable the employee to discuss information with specific individuals and groups, and that a the employer must abide by the non-disparagement provision or it will render the provision unenforceable against the employee. Employers who attempt to enforce agreements that are not compliant with POWR may face legal and financial penalties.
When Is Severance Pay Due in Colorado?
Colorado does not set a specific statutory deadline for severance pay unless the agreement specifies one. However, Colorado’s wage payment laws apply directly to severance. Employers must pay any contractually owed compensation by the next regularly scheduled payday after termination. The specific terms of the agreement may require an earlier payment date.
If the parties agree to a lump-sum severance, the employer should pay it on the timeline stated in the agreement. Delays or failures to pay can trigger a wage claim under the Colorado Wage Claim Act. In certain circumstances, employees can recover the amount owed plus additional penalties.
Does Severance Pay Affect Unemployment in Colorado?
It may. In Colorado, severance pay may delay the start of unemployment benefits, but it does not eliminate eligibility. Accepting a severance package does not disqualify you from collecting unemployment. You can still receive unemployment benefits once your severance period concludes.
The Colorado Department of Labor and Employment treats certain severance payments as wages. As a result, severance can postpone when a claimant becomes eligible for unemployment checks.
For example, a four-week lump-sum severance may delay unemployment eligibility for four weeks. Once that window closes, eligibility resumes if all other requirements are met.
Employees should file their unemployment claim at the time of separation, not after severance ends. The CDLE processes claims while severance is still being paid. Severance delays when payments begin, but filing early prevents further delays once the severance period closes.
Colorado law does not allow severance agreements to block unemployment claims. Any clause attempting to prevent an employee from filing is unenforceable. The same applies to clauses requiring repayment of benefits received. Employees uncertain about their specific situation should contact the Colorado Department of Labor and Employment before filing. Consulting a Colorado employment attorney is also advisable.
Can You Receive Severance Pay If You Were Fired for Cause?
Yes. Employers and employees are free to form severance agreements regardless of the reason for termination or separation. Whether severance is provided depends entirely on the terms of the severance agreement, employment contract, or company policy. Colorado law neither prohibits nor requires severance for employees terminated for cause. Whether a for-cause termination triggers severance depends on what both parties agreed to in writing.
Some employment contracts exclude severance for employees terminated for cause. Others are silent on the distinction. Consider a company policy that provides severance but says nothing about for-cause terminations. In that case, a terminated employee may still have a contractual right to severance. Anyone in this situation should review their employment agreement carefully. Consulting a Colorado employment attorney before drawing conclusions is strongly advisable.
Talk to a Colorado Employment Lawyer Today
Colorado severance pay laws leave significant room for interpretation. The terms of any given agreement determine what rights and obligations apply. Whether you are structuring a departure or reviewing an offer, the stakes are real.
Baker Law Group, PLLC assists clients across Colorado with severance agreement review, negotiation, and enforcement. Contact Baker Law Group, PLLC today to speak with a Denver employment lawyer. Reaching out early, before signing or drafting, can prevent disputes before they start.
Have More Questions? We Have Answers.
What is the revocation period for a severance agreement in Colorado?
For employees aged 40 or older, the Older Workers Benefit Protection Act requires a seven-day revocation period after signing. This applies to any agreement waiving Age Discrimination in Employment Act claims. During those seven days, the employee can withdraw without penalty. The 21-day review period before signing and the seven-day revocation period after signing are both mandatory.
For employees under the age of 40, no revocation period is required, and one is not generally provided. Under those circumstances, the agreement becomes binding the moment it is signed.
Can you negotiate a severance package in Colorado?
Yes. Severance terms are generally negotiable when no fixed contractual obligation already exists. Employees can negotiate the payment amount, length of salary continuation, scope of any claim release, and timing of payment. Employers are not required to negotiate, but many do to achieve a clean separation. An employment attorney can identify which terms are worth pushing back on and which restrictions may be unenforceable under Colorado law.
What happens if an employer fails to pay agreed severance in Colorado?
If an employer offers severance in writing and then fails to pay it, the employee may have a breach of contract claim. Depending on how the agreement is structured, the employee may also file a wage claim under the Colorado Wage Claim Act. That law allows recovery of unpaid amounts plus statutory penalties. The appropriate remedy depends on the specific facts and agreement language. Consulting a Colorado employment lawyer promptly is advisable.
Can you receive severance pay if you resign in Colorado?
Generally no. Unless the employment contract or company policy specifically provides for severance upon voluntary resignation, a resigning employee has no legal right to it. Most severance packages cover involuntary separations such as layoffs or restructuring. However, an employee who resigns may still be able to negotiate a separation package depending on the circumstances. Best practice is to consult with an employment attorney to determine whether it is possible to negotiate a severance package under the circumstances that led to your resignation.
Is severance pay taxable in Colorado?
Yes. Severance pay is treated as ordinary income and is subject to federal and Colorado state income taxes, as well as Social Security and Medicare taxes. Employers must withhold applicable taxes from severance payments in the same way they would from regular wages. Employees receiving a large lump-sum severance should note that withholding may not cover their full tax liability for the year.
