In a majority of situations, severance pay laws do not require employers to offer severance packages to terminated employees -- but it could make sense to do so anyway.
Some employers may think that the severance pay laws require them to offer severance packages to terminated employees in the form of some money and continuing benefits. However, in many situations, this is an incorrect assumption as the applicable severance pay laws do not often require employers to provide severance packages. Read on to learn more about when severance may is required and what may be included in a severance package.
Situations Where Severance Pay Is Required
Generally speaking, there are only two situations when an employer is legally required to offer severance pay. First, some states have laws that require employers to offer terminated employees severance pay when their terminations are due to a facility closing or the company is laying off a large number of employees. In these situations (and depending on the state's laws), employers may be required to give a small amount of severance pay. To find out more about the laws in your state, you should contact your state's labor department.
As for the second scenario, employers may be legally required to provide terminated employees with severance pay if they led their employees to believe that they would be paid severance. This is often evidenced by:
There are many employers that often give severance packages to long-term employees that have been with the company for a substantial period of time, even without a legal requirement to do so. In addition to some employers feeling that this is the right thing to do to reward the employee's loyalty and hard work, it often softens the blow that can come with termination and can discourage a former employee from pursuing a lawsuit against the company. Remember that the happier you can keep employees that have been terminated, the less likely that those former employees will decide to sue your company.
Perhaps the key rule to take from this article is that if you do decide to give severance packages to some employees, you must be consistent in who you give severance pay to. If you only want to provide severance pay to "higher-ups" in the company, be sure to draw a clear "cut-off" line. This does not mean that you must provide equal amounts of severance pay to each employee that gets above this line.
Instead, you can also institute a policy that makes the amount of severance pay dependent upon the length of employment. By doing so, you can honor your longtime faithful employees without having to give big payoffs to employees who leave the company after a short employment.
If you are ever less than honest and equal in giving out severance pay, you risk being sued for discrimination. If, for example, your company decides to give men a 20 percent increase in severance pay without any justification, you could face a discrimination lawsuit from the women that are entitled to severance pay.
Things to Include in a Severance Package
What you decide to include in your company's severance package is entirely up to you (unless you are already tied down by a contract or a promise). When designing a severance package, you should keep the goal --softening the blow of termination -- in mind. In working towards this goal, you should take a look at the following list:
Questions about Severence Pay Laws in Your State? An Attorney Can Help
It's important to be in compliance with all applicable employment laws, including severance pay laws, because the consequences of noncompliance can be crippling to a business. A qualified employment law attorney can help you decide if an outgoing employee will be entitled to severance pay.