Are employers required to offer severance or termination pay when firing employees?
UPDATED: February 6, 2020
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There is generally no requirement that severance or termination pay be given to an employee who is laid off, unless there is an employment contract in place guaranteeing such pay or unless there is another specific reason a severance package would be mandated.
Understanding Severance Pay
Severance or termination pay is something that many employees have heard of, but far less have actually ever received. Severance pay is usually given by an employer to its employees who are laid off or terminated for reasons other than firing-for-cause. Many people may wonder whether or not severance pay is required by law, since it comes up often in the news when major manufacturing plants close or other situations occur. In general, severance pay is up to the employer’s discretion and is only legally required under specific circumstances. This means severance pay laws are tricky.
When Is Severance Pay Required?
The situations where severance pay may be required are as follows:
- Some states require an employer pay severance pay when laying off a large number of individuals, such as through a plant closing or a bankruptcy or other massive shutdown of the company.
- Severance may be required when a precedent has been established such that employees expect they will be paid severance when they have been let go because others who have been let go have received severance pay.
- Severance will be required if it was included as part of an employment contract.
- Severance pay may also be used as a way for employers to pacify former employees that may be leaving on questionable terms. In order for the company to avoid lawsuits for potential issues for problems that the employee encountered while on the job, the employer may offer a severance package. A severance package may help the employer avoid having to deal with situations that may have been actionable in court, if the employee chose to sue the employer.
To understand your specific rights to severance pay based on your job situation, it is in your best interests to consult with an experienced attorney. Your lawyer can assess your termination and any employment contract you may have and let you know what options exist.