What is Severance Pay?

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What is Severance Pay?

Severance pay refers to payments made from an employer to their employee in connection with their termination or release from the company.  Severance pay is usually offered as part of an overall employee severance package, which may include:

Thus, severance pay can actually include assets that are not part of the employee’s regular paycheck.  State laws may vary regarding what can and can’t be included in a severance pay agreement.

When is Severance Pay Granted? 

As mentioned, severance pay is usually granted if the employee is terminated or if they retire according to the terms of an employment contract.

In other situations, severance pay may refer to pay that is offered to an employee who is being terminated earlier than what is stated in their employment contract.  The employer may offer severance pay in lieu of notice, or as an incentive for the employee not to seek legal action for stepping outside the terms of the employment contract.

In some cases, this sort of unplanned severance pay might work for both parties.  Instead of filing a lawsuit, the employee may agree to set aside the employment contract terms, accept the severance pay, and begin searching for new employment elsewhere.  This is similar to a party accepting a settlement offer instead of pursuing a lawsuit. 

However, if a severance pay offer is not satisfactory to the employee, they may seek legal recourse by hiring a lawyer and filing a lawsuit with the court for damages.  There may be a need to do this if there has been a breach of the employment contract that caused the employee to suffer damages.

How is the Amount of Severance Pay Determined?

Severance pay can be determined ahead of time as part of the original employment contract between the employer and the employee.  They may agree to the terms listed above, such as those covering unused vacation time, insurance plans, retirement benefits, etc.  This may require some foresight and cooperative planning between the employer and the employee.

However, severance pay is not always addressed in an employment contract, and the employee is not always automatically entitled to severance pay.  This is especially true if there is no mention of severance pay in an employment contract.  In such instances, negotiation over the severance pay may be necessary, in which case the services of a lawyer may be needed.

Do I Need a Lawyer for Help With Severance Pay?

Severance pay can sometimes present many different unexpected legal issues.  If you need help with the employment and severance pay laws in your area, you may wish to speak with a qualified employment attorney.  An experienced lawyer can advise you on whether it’s appropriate for you to seek or accept severance pay.  Also, in the event that you need file a civil lawsuit, your attorney can represent you in court if you need to request a damages award.

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Last Modified: 12-31-2012 12:04 PM PST

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