Severance Pay

Am I Entitled to Severance Pay?

You might be surprised to learn that there are no U.S. Federal laws that directly regulate severance pay. In fact, U.S. employers don't even have to offer severance pay under Federal employment or labor law.

This might seem confusing, because many employers offer severance pay despite that they don't have to; they do so as "conscience money" to help former employees survive layoffs, to stay competitive with other employers or as a legal "bribe" to avoid lawsuits by former employees.

For mass layoffs, some states and the Feds require certain companies to notify affected employees in advance. As a result, your employer might send you packing on the day you get your pink slip, but will still send you paychecks and provide the benefits to which you're entitled throughout your layoff notification period (e.g., 60 days).

Although it's better than just a boot on your backside, your continued paychecks are not severance pay by definition; they are your regular pay in compliance with the law. An unscrupulous company might call it "severance pay" anyway, to make you think they're doing you a favor. But, sending you home with pay is actually a convenience for the company, to avoid last-minute retaliation such as theft and sabotage.

Real severance pay is extra money in addition to any regular pay the company owes you, as meager compensation for losing your job. (To be true severance pay under unemployment laws in some states, your employer's intention in paying it must be to supplement your unemployment compensation.) A severance package might include severance pay, along with extended benefits.

If you have an employment contract that explicitly indicates that you are entitled to receive severance pay after employment or contract termination, then your employer is obligated to pay it to you, if you have complied with the terms in your contract.

In the absence of explicit contracts, several states consider policy manuals, employee handbooks and such to be binding, implied contracts between employees and their employers. So, if one of those documents implies a "promise" of severance pay in some way, shape or form, then your employer might be bound to it; that is, if you didn't sign an agreement, in which you acknowledged that such documents do not constitute contracts.

If your employer has a long history of issuing severance pay to recently discharged or resigned employees, then the state in which you work might consider your employer's historical actions as a binding, implied contract, that indicates you ought to receive it too under similar circumstances. Your work state might also consider a verbal promise of severance pay as a binding, implied contract.

Consult a lawyer if you think that your employer deprived you of severance pay under an implied contract. If your employer deprived of severance pay required by your explicit employment contract, then the Employee Benefits Security Administration (EBSA) might assist you in collecting it; if not, consult a lawyer.

If you think you're getting a raw deal, then you might be able to negotiate a better deal. For example, if your employer is trying to force you to quit your job to avoid the potential legal complications in firing you, then, depending on your position, you might have leverage to negotiate severance pay or a better, overall severance package. Get it in writing.

If your employer is laying you off or firing you, then management might be feeling guilty or concerned about what the remaining employees will think. So, they might be willing to compromise; again, depending on your position. Regardless, don't expect them to come to you. If you just lay down and take it, then they have little incentive to make a better offer.

On the other hand, don't push your luck too much. If you do try to negotiate, then you are effectively declining your employer's first severance pay offer, by making what amounts to a counteroffer. If your employer doesn't wish to negotiate, then they will probably honor their first offer anyway; but, be aware that they don't have to, unless a contract of some sort indicates otherwise.

For more about the legalities, plus information about relevant laws and severance agreements, see Severance Pay at EmployeeIssues.com, a subsidiary site of TechnicalJobSearch.com.

"Severance Pay" provides general information only and is not intended as legal advice nor as a substitute for legal advice. It is presented as is, with no warranty either expressed or implied. Neither the author nor publisher are engaged in rendering legal services. See an employment lawyer for legal advice. Should you act based on this information, you do so at your sole risk. Neither the author nor publisher shall have any liability arising from your decision to act on this information. Read our Disclaimer for more information.