Severance Pay for Departing Workers
There is no federal law that obligates employers to give severance pay to their workers who will be laid off or terminated, with the exception of some states which require companies to provide severance pay for laid off employees.
While giving severance pay is not mandatory, some employers provide this to their workers to make their separation amiable.
For workers, severance pay will allow them to cope with unemployment until they find a new job. This kind of additional benefit can also boost their morale despite being laidoff or terminated from their work.
For employers, giving severance pay will send a message that they are willing to help their terminated employees. While this may appear like an altruistic move, companies which have severance policy believe that this may discourage workers from filing employment lawsuit.
This belief is not without basis. According to some previous studies, employment terminations that were handled properly (giving separation pay, back pay, severance pay, and other additional benefits) may result to amiable relationship between a company and its terminated worker who may not consider filing a lawsuit against his former employer.
With these findings, employers have realized that while severance pays are expensive, lawsuits are costlier.
Severance Policy and Qualifications
Employers who are contemplating on giving out employment severance packages should tell their workers about certain requirements to become eligible to receive this additional separation benefits. The policy should also include the computation for the amount of severance pay.
To prevent legal loopholes, employers should hire a lawyer to review the severance policy and make sure that this is in line with the employment law called Employees Retirement Income Savings Act (ERISA) which regulates certain types of worker’s benefit plans.
Here is an example of a severance policy that includes all the basic requirements to become eligible:
- To become eligible for severance pay, a worker should not resign or quit from his position.
- A worker should at least spend one year in the company before receiving severance pay in case that he will be terminated or laid off.
- The reason for termination should not involve violation of company polices or grave misconduct.
Qualified workers will be awarded with employment severance packages for every year they will render their service to the company.
Meanwhile, if employers have severance policy but failed to give eligible workers this additional separation benefit, they may be liable for a breach of contract.
No Severance Policy
Some employers choose not to provide severance pay to their workers. However, they should inform their employees about this arrangement to avoid confusion.
However, there are some incidents where companies, which have no severance policy, suddenly decide to give this additional benefit to a terminated employee. According to lawyers, this is legal since the federal law allows employers to have the privilege to decide if a laidoff employee deserves to have severance pay.