Offering A Severance Package Lawyers
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Do I Need to Give a Severance Package When I Fire an Employee?
Many employers believe that they must give a severance package (a combination of pay and some benefits) to each employee that they fire. This is not true. There is no state or federal law that requires you to give a severance package to all of your fired employees. Rather, you are only legally obligated to give an employee a severance package under certain circumstances.
When Must I Give a Fired Employee a Severance Package?
Legally, you are only required to provide a severance package to a former employee when you led the employee into believing s/he would receive one. This can happen in the following circumstances:
- When a promise or a guarantee of a severance package is written in a contract, usually in the employment agreement
- When the promise of a severance package is documented in an employee handbook or personnel policies
- When you made an oral promise of a severance package to an employee that induced them to act or not act on reliance of that promise, such as agreeing to retire at a certain point
- When there is a history of providing severance packages to other employees in the same position, so that the employee would be led to believe that they too would be given a severance package in the same manner as the others
Why Should I Provide a Severance Package If I Am Not Obligated To?
Even though you may not have a legal obligation to provide a severance package to a former employee, it may be in your best interests to do so. Severance packages are normally offered as a way to alleviate the bad news of being fired or let go. Such packages also usually make a fired employee feel like they have been treated fairly. A disgruntled, angry former employee is more likely to sue you for wrongful termination, which can result in high settlement costs or litigation. Thus, a severance package can help reduce the likelihood of being sued.
If I Decide to Offer a Severance Package, What Should I Include?
You are not required to include anything in particular in a severance package. In other words, there are no rules as to what must be included. However, the following are commonly found in severance packages:
- Pay - Some amount of pay is usually provided, often based on years of work (e.g., one week's salary for every year worked). This is usually the most important part of a severance package.
- Insurance benefits - Sometimes, employers choose to continue to pay for insurance benefits for a certain period of time. Also, there are some requirements though the Consolidated Omnibus Budget Reconciliation Act (COBRA) that must be met.
- Reference - You may want to come up with a reference with your former employee that s/he can use in attempting to obtain other work.
- Outplacement program - An outplacement program helps former employees to find new work by providing advice on resume writing, practice interviews, counseling on career goals, and help finding potential jobs.
- Promise to not contest unemployment claim - A fired employee is allowed to file a claim for unemployment compensation provide s/he was not fired for serious misconduct, and an employer is allowed to contest this claim. You can include a promise that you will not contest this claim in a severance package, which will increase the odds that the employee will receive unemployment benefits.
Other Advice on Severance Packages
No matter what you decide, make sure you are consistent. If you decide to provide severance packages, make sure you are consistent in doing so. Severance packages are allowed to vary based on how long the employee has worked for you and the employee's job category. That being said, be sure to treat all employees equally. In doing so, you will reduce the chances that you will be sued for discrimination.
Do I Need a Lawyer If I Am Considering Providing Severance Packages?
Determining when to offer a severance package and what to include in severance packages can be very difficult. An experienced employment lawyer will know the law in your area and can help you plan when to offer severance packages and what to offer in them.
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Last Modified: 06-18-2014 09:56 AM PDT
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