When you are laid off from a job, you want to be sure your final pay includes all the benefits to which you are entitled. Employers provide severance pay in order to help departing employees, to keep up the morale of remaining employees, and to avoid lawsuits.
Severance pay is money paid in addition to your salary or wages, accrued vacation, and other benefits. It is not required by federal law, although a few states, such as Maine, require severance pay when plants are closed. Otherwise, it is left to the discretion of the employer.
How is severance pay determined?
The amount of severance pay to which you may be entitled depends on your employer’s plan. Conditions vary widely and depend on whether the employer is in the public or private sector, as well as the size of the employer, with larger companies generally offering more formalized severance packages.
Length of employment
Severance pay is often based on your length of employment with the company. For example, you may be entitled to one or two weeks of severance pay for each year you have worked for the company, perhaps with a cap at a certain number of years.
Level in the organization
Whether or not you are entitled to severance pay and how much you will be paid may also depend on your level in the organization. Executives may get from six months to one year of severance pay; management-level employees, three to six months; and non-management employees, up to 12 weeks or none at all.
Cause of termination
The cause of termination of your employment can also affect your severance pay. If you are terminated for cause, you probably will not receive severance pay. But if you are laid off due to the closing of a plant or operation, or a general staff reduction, you may be entitled to severance pay.
How is the severance plan documented?
The severance plan the employer offers may be included in a written employment contract, in a collective bargaining agreement, in the employee handbook or in a separate document as part of the employer’s benefit plans.
An employer may offer a severance package at certain times, such as in order to reduce its workforce, or might implement a special severance plan if it closes down a plant or operation. In these cases the plan would probably be documented in a special notice from the company, along with the corresponding policies and procedures.
An employer can generally create, modify or abolish a severance plan as it chooses. But if there is a plan, you have the right to a written summary description that tells you what you are entitled to receive.
When there is no written plan for severance pay
Even when there is no written severance plan, it might be possible to prove the company does in fact have one, although that could be difficult. You must be able to show a predictable pattern of severance benefits being paid in the past so that you could determine who was eligible, when they became eligible, and how much they received. A long history of the company’s paying severance to other employees in your position may indicate that a plan exists.
The fact that your employer has no plan does not prevent you from asking for and negotiating severance pay; since it is at the employer’s discretion, there may be some room for flexibility.
Separation agreements
In order to receive severance pay, you may be asked to sign a separation or severance agreement. This is often to protect the employer from any legal action that might be taken by terminated employees. By signing the agreement, the employee is generally waiving the legal right to file any type of claim or lawsuit against the former employer.
In this case, the employer’s severance plan must include the release of rights as a condition for the payment of any severance benefits. If you have any doubts about any rights or claims you have, and which you would be relinquishing by signing the agreement, you should consult with an attorney. Consider the costs and benefits; for example, if you have only a small claim pending and the attorney’s costs are more than that, it may not be worth refusing to sign the agreement.
On the other hand, if your claims are significant or there is a matter for which you cannot easily determine a value, such as a potential case of discrimination or wrongful termination, you should consult an attorney.
Waiting period
Your employer will normally give you a certain amount of time to evaluate your rights and claims and consult with an attorney before you need to sign the agreement, if you so choose. Your employer cannot rescind the offer of severance pay during this waiting period, and if you choose to sign the agreement before the waiting period is up, you can do so.
Offer – counter offer
If you decide to negotiate instead of signing an agreement, you are effectively declining your employer’s first offer and making a counter offer, which your employer can accept or reject. If your employer rejects your counteroffer, you could end up with little or no severance pay.
In practice, most employers will continue to honor their original offers when they reject your counter offer. The courts would normally expect employers to compensate employees when they are being asked to waive their legal rights.
Agreements may be revocable
Severance agreements that require full release of an employee’s rights may be revocable. And the agreement should only relate to discretionary severance pay. Employers cannot withhold earned wages or other money already owed to employees pending their signature of an agreement to release their rights.
Negotiating other benefits
Some employers offer a severance package that includes pay and/or other benefits. If a package is not offered, you might be able to negotiate for other benefits, such as a continuation of your health insurance. The COBRA law requires employers to allow you to continue your coverage if you pay the premiums. But you can negotiate so that your employer continues to pay the premiums for a period of time.
You can ask your employer not to contest your claim for unemployment insurance compensation. This will make it easier for you to obtain these benefits. Your employer might provide outplacement services to help you find a new job; this can include counseling, job skills training, advice on writing a resumé and cover letter, and leads on potential jobs. Some employers allow you to use their office space and computer to help you in your job search. You can also negotiate to obtain a mutually acceptable letter of reference from your employer.