Severance Package Laws
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What Is a Severance Package?
A severance package is a pay and benefits an employee receives when he or she is terminated or leaves the company. The package is not the money that the company already owes you for the time you already have worked, but rather a "bonus" in addition to your earned salary. The details for a severance package are often written down in a severance agreement.
While no law requires an employer to offer you a severance package, many employers do provide them when an employee is forced to leave his/her job. Severance packages often contain clauses in which you waive your right to sue your employer for wrongful termination, so it is important to be sure that what your employer is offering you is a good deal.
What Is Normally Included In a Severance Package?
Every severance package agreement is different because severance pay is usually based on the length of employment. Many companies provide severance packages depending on the employees role in the company. These severance packages often include a variety of benefits, from severance pay to health insurance benefits. Things that are often included in a severance package are listed below.
An employer will almost always provide some kind of severance pay if s/he offers a severance package at all. The amount of pay can vary greatly, but it is usually calculated based on how long you worked for the employer. For example, two weeks¿ salary for every year your worked.
There are laws, both state and federal, that require your employer to offer you continued health insurance benefits when you leave your job. Under these laws, including the Consolidated Omnibus Budget Reconciliation Act (COBRA), you will have to pay the costs of coverage. Often times an employer will include paying the costs of continued insurance benefits for a specific period of time into a severance package.
A Promise to Not Contest Unemployment Claims
Depending on how you left your job and some other factors, you may be eligible to receive unemployment benefits. If you file a claim for them, your former employer will have a chance to contest your claim. It is possible to get a promise from your former employer to not contest your claim for unemployment benefits included in a severance package.
It is possible to work with your employer to come up with a letter of reference that you find satisfactory for you to use in seeking out other employment. This letter of reference can be included into your severance package.
Sometimes employers will provide you with services, such as career counseling and job training, to help you find a new job. These services are called outplacement services and can be offered as part of a severance package.
How Are Severance Package Calculated?
Many companies provide severance packages depending on the employees level and role within in the company. Companies also have policies that state the way that severance pay is determined. Severance packages can also be be negotiated between employee and employer. There are certain factors that go into calculating severance packages:
- Number of years employee has worked at the company
- Employee's level or role within the company (management, executive, etc)
- The Size of the Company
- The way severance package was listed to be paid in the employment contract
- Amount negotiated between employee and employer
What Should I Consider Before Accepting A Severance Package?
There are always important things to consider before accepting a severance package. While it may seem like a lot of money at the spot, you should know that you are giving up your legal rights to bring a claim against the employer. Here are some things you should know before signing and accepting a severance package:
(1) Know There is No Time Limit: Many people think that they have a limited time ( 21 days) to accept a severance package. However, there is no statutory time to accept an agreement and may be accepted at anytime as long as it was made "knowingly and voluntarily".
(2) Release of Rights: Most severance packages contain a release of the right to bring a claim against employer. Know that you can still bring discrimination claims even after signing the release.
(3) Know that You Can Negotiate: Understand that you can negotiate the amount that the employer is offering if you believe you deserve a higher amount, ask for it.
(4) Restrictive Covenants: If there a clause that restricts you to work somewhere or at a competitor, make sure that its reasonable and consider whether you are comfortable with it.
(5) Read and Understand Agreement: Before signing and accepting the package, make sure you understand what you are signing and read all the information on your own or with the help of an attorney.
Do I Need a Lawyer?
If you are offered a severance package, an experienced employment lawyer can help you determine whether or not it is a good deal. Also, you may be in a position to negotiate your severance package with you employer (especially if you firing was questionable) and a consulting with one or more severance package lawyers with knowledge of employment law can assist you in dealing with your employer and getting the package you deserve.
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Last Modified: 12-15-2015 10:21 AM PST
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