Arizona Severance Pay Laws (2026): Is Severance Required?

No Arizona statute we found requires an employer to pay severance. In Arizona, severance is owed only when an employment contract, company policy or separation agreement promises it, and the Arizona Supreme Court held in Schade v. Diethrich, 158 Ariz. 1, 760 P.2d 1050 (1988), that an express promise of severance is an enforceable contract.

The one Arizona statute that defines and regulates severance pay is an unemployment provision, A.R.S. 23-621, covered below. For how other states handle severance and the federal rules in full, see our severance pay laws by state guide.

Information last verified on October 7, 2026. This article has not been reviewed by a licensed lawyer.

Jurisdiction scope: This article covers Arizona law on severance pay: the absence of a state mandate or layoff-notice law, how promised severance is enforced (including the open question under the wage statutes, A.R.S. 23-350 to 23-357), and how severance affects unemployment under A.R.S. 23-621. Federal rules appear in short notes; the full federal layer is on our severance pay laws guide. For final-pay deadlines, see Arizona final paycheck laws; for benefit amounts, see Arizona unemployment benefits.

Is severance pay required in Arizona?

No Arizona law we found requires it. We reviewed the full section-title index of Title 23 (Labor) of the Arizona Revised Statutes on the Legislature's website, about 440 sections, for layoff, plant closing, severance, dismissal, separation, release, settlement and nondisclosure. No section requires severance. The only section that names severance pay as an operative rule is A.R.S. 23-621, the unemployment provision.

That was a review of section titles in Title 23, not a full-text search of every Arizona statute, so treat it as what our review found rather than a guarantee. The U.S. Department of Labor says the federal Fair Labor Standards Act does not require severance either; it is a matter of agreement between employer and employee.

No Arizona WARN act: federal WARN applies

We found no Arizona law requiring advance notice of a plant closing or mass layoff, and no state rule making an employer pay for skipping one. The Arizona Department of Economic Security's worker adjustment page describes only the federal WARN Act. It directs employers to send federal WARN notices to the State Rapid Response Coordinator and says layoffs that fall outside WARN are reported to Local Rapid Response Coordinators voluntarily.

Federal WARN requires 60 days' written notice from employers with 100 or more employees, not counting part-time employees (or 100 or more employees, counting part-time workers, who together work at least 4,000 hours a week, not counting overtime), before a covered plant closing or mass layoff, and an employer that skips it owes back pay and benefits for up to 60 days (29 U.S.C. 2101-2102, 2104). Our severance pay laws guide explains who is covered and how liability is calculated.

Promised severance in Arizona: contract claim, and an open question on wages

When an employer promises severance and does not pay it, Arizona courts treat the promise as a contract. In Schade v. Diethrich, the Arizona Supreme Court held that an express severance promise was enforceable and affirmed an award of $73,500 in unpaid severance plus $3,500 in other severance benefits.

The same opinion also held that the promised severance was "wages" under A.R.S. 23-350 as it then read. The statute the court quoted listed "sick pay, vacation pay, severance pay, commissions, bonuses and other amounts promised when the employer has a policy or a practice of making such payments." The court rejected a reading that the "policy or practice" condition applied to severance:

"Thus, the limiting condition of “policy or practice” should apply only to “amounts promised” and not to sick pay, vacation pay, severance pay, commissions and bonuses." Schade v. Diethrich, 158 Ariz. 1 (1988)

The current text of A.R.S. 23-350 on the Legislature's website no longer contains that sentence. The Legislature struck it in 2016 (Laws 2016, ch. 203, HB 2579, approved May 11, 2016), and the same act listed severance pay as "nonwage compensation" for purposes of a separate section, A.R.S. 23-204(C). The definition's first sentence, which Schade also relied on ("nondiscretionary compensation due an employee in return for labor or services rendered by an employee for which the employee has a reasonable expectation to be paid"), is unchanged. We could not establish whether any later Arizona court decision addresses whether Schade's wages holding still applies after the 2016 change. Until that is settled, this page does not say that promised severance is wages under Arizona's current statute.

Why the wages question matters

If unpaid severance is "wages due," Arizona's wage statutes apply to it:

• Treble damages. A.R.S. 23-355(A) lets an employee "recover in a civil action against an employer or former employer an amount that is treble the amount of the unpaid wages."
• Good-faith dispute. An employer may withhold wages when "There is a reasonable good faith dispute as to the amount of wages due" (A.R.S. 23-352(3)).
• Payment deadline. A discharged employee "shall be paid wages due him within seven working days or the end of the next regular pay period, whichever is sooner," and an employee who quits is paid by the regular payday for that pay period (A.R.S. 23-353(A)-(B)). This section does not mention severance. Final-pay rules are covered in Arizona final paycheck laws.

If severance is not wages, none of those rules applies, and the timing and conditions of payment come from the plan or agreement itself. Act quickly if you plan to sue. Arizona allows one year to sue "For breach of an oral or written employment contract including contract actions based on employee handbooks or policy manuals that do not specify a time period in which to bring an action" (A.R.S. 12-541(3)). We did not establish whether a separate severance or separation agreement falls under that one-year rule or a longer contract deadline, so plan around one year and get advice early.

Filing a wage claim with the state

The Labor Department of the Industrial Commission of Arizona handles wage claims. Under A.R.S. 23-356(A), an employee may file a written claim with the department for unpaid wages of up to $12,000, within one year after the wages accrue, instead of suing under 23-355. The department investigates "wage and nonwage claims" timely filed under that section (A.R.S. 23-357(A)).

The ceiling was raised from $5,000 to $12,000 by SB 1159 (Laws 2025, ch. 38), which the Governor approved on April 2, 2025. We could not open the Industrial Commission's own wage-claim pages, so we cannot say whether the department accepts a claim for promised severance; contact it directly before relying on this route.

Company severance plans

An ongoing company severance program can be a benefit plan under ERISA, the federal benefits law, which supersedes state laws that relate to covered plans (29 U.S.C. 1002(1), 1144(a)). The U.S. Department of Labor says its Employee Benefits Security Administration may help an employee who did not receive severance benefits under an employer-sponsored plan.

Severance and Arizona unemployment benefits

Severance pay delays Arizona unemployment benefits for the period it covers. A.R.S. 23-621(C) says: "An individual shall not be deemed "unemployed" if the individual is receiving wages in lieu of notice or severance pay."

The statute then tells the department how to spread the payment out:

• If a written contract was in effect at separation, the pay is allocated as the contract provides, continuing for the number of work days the pay would cover at the regular wage or salary rate.
• If there was no such contract, the pay is allocated to the period following the last day you performed services, for the number of work days it would cover at your regular rate.

Under this rule a lump sum is treated as covering the number of work days it would pay for at your regular rate, not as a single week's income.

What counts as severance pay for unemployment

A.R.S. 23-621(D) defines severance pay broadly. It includes amounts an employer pays because of a resignation, a termination, participation in an exit incentive program, a reduction in force, or "in consideration for the employee's release of actual or potential claims for the termination of employment." It excludes amounts paid for health benefits or under an employee benefit plan.

That means a payment for signing a release counts as severance for Arizona unemployment purposes. Report any severance or pay in lieu of notice when you file. Benefit amounts and how to file are on our Arizona unemployment benefits page.

What an Arizona severance agreement can ask you to give up

Apart from the unemployment rule below, we found no Arizona statute that sets a review period for a severance agreement or limits release, nondisclosure or non-disparagement terms in one. Our review of Title 23 section titles turned up nothing on releases, settlements or nondisclosure agreements, and we did not research Arizona court decisions on releases. We also did not find a source on whether a private severance agreement can release a claim for unpaid wages under Arizona law.

A release in a severance agreement cannot take away your right to unemployment benefits. Under A.R.S. 23-784, "No agreement by an individual to waive, release or commute his rights to benefits or any other rights under this chapter shall be valid," apart from child support and food stamp repayment agreements enforced through the department, and A.R.S. 23-735(A) says no employer shall "require or accept a waiver of any right under this chapter by any individual in his employ."

Non-compete terms in a severance agreement

Arizona courts will not enforce a non-compete that is greater than necessary to protect the employer's legitimate interest, or whose interest is outweighed by the hardship to the employee and the likely injury to the public; they may strike grammatically severable unreasonable terms but will not rewrite the clause (Valley Medical Specialists v. Farber, 194 Ariz. 363 (1999)). Separately, A.R.S. 23-494 makes it unlawful for a TV or radio station or network to require a current or prospective employee to agree to a non-compete as a condition of employment.

Federal limits that apply in Arizona

Our severance pay laws guide explains each of these:

• Workers 40 and older. A release of federal age-discrimination claims must give you at least 21 days to consider it (45 in a group layoff) and 7 days to revoke it after signing (29 U.S.C. 626(f)).
• Sexual harassment and assault. A nondisclosure or non-disparagement clause agreed to before a dispute arises cannot be enforced in court in a sexual assault or sexual harassment dispute (42 U.S.C. 19403).
• Labor-law rights. The NLRB's McLaren Macomb decision, 372 NLRB No. 58 (2023), bars severance agreements that require employees to broadly give up their rights under the National Labor Relations Act. The NLRB General Counsel said in memo GC 26-04 (August 26, 2026) that she is arguing to overrule it in an open case, so it remains Board law until the Board acts.

Because Arizona counts release payments as severance for unemployment, read how the agreement describes each payment and the period it covers, and keep a copy of every version you receive.

Recent changes

• SB 1159 (2025), Laws 2025, ch. 38. Raised the ceiling for a wage claim filed with the Labor Department under A.R.S. 23-356 from $5,000 to $12,000. Approved by the Governor on April 2, 2025.
• SB 1036 (2026). An unemployment-benefits bill whose Senate-engrossed version did not amend A.R.S. 23-621, the severance rule. The Governor vetoed it on February 20, 2026, so it did not change Arizona law.

Searches of the 57th Legislature surfaced no bill on severance pay, plant-closing or mass-layoff notice, or separation agreements, but that was not a full bill-index search.

Related

• Severance pay laws by state
• Arizona final paycheck laws
• Arizona unemployment benefits

Disclaimer: This article provides general legal information about Arizona severance pay law (A.R.S. 23-350 to 23-357 and A.R.S. 23-621) and the federal laws that apply in Arizona. It is not legal advice. The information was verified on October 7, 2026. For advice about your situation, contact the Arizona Department of Economic Security about unemployment, the Labor Department of the Industrial Commission of Arizona about wage claims, a legal aid office, or a lawyer licensed in Arizona.

Last updated: October 7, 2026.

Frequently Asked Questions

Is severance pay required by law in Arizona?

No Arizona statute we found requires it. Severance is owed only when a contract, policy or agreement promises it, and the Arizona Supreme Court enforced an express severance promise as a contract in Schade v. Diethrich (1988).

Does severance affect unemployment in Arizona?

Yes. Under A.R.S. 23-621(C), you are not considered unemployed while receiving severance pay or wages in lieu of notice, and the payment is allocated over the work days it would cover at your regular rate.

Does Arizona have a state WARN Act?

We found none. The Arizona Department of Economic Security describes only the federal WARN Act, which requires 60 days' notice, generally from employers with 100 or more full-time employees.

Can I get treble damages for unpaid severance in Arizona?

It is unsettled. A.R.S. 23-355 allows treble damages for unpaid wages, and Schade v. Diethrich treated promised severance as wages under the 1988 statute, but the current A.R.S. 23-350 no longer mentions severance.

Does a payment for signing a release count as severance in Arizona?

For unemployment purposes, yes. A.R.S. 23-621(D) includes amounts paid in consideration for releasing actual or potential claims over the termination.

How long do I have to sign a severance agreement in Arizona?

We found no Arizona rule on review periods. If you are 40 or older, federal law requires at least 21 days to consider a release of age-discrimination claims (45 in a group layoff) and 7 days to revoke it after signing (29 U.S.C. 626(f)).