In an employment setting, a severance package is usually offered to an employee in connection with their termination. It generally includes pay and some benefits, which may vary from instance to instance.
Although many employers may offer them, there are no specific laws making severance packages mandatory. An employer is only legally required to provide unpaid wages and unemployment benefits to a terminated employee if the employee is entitled to them.
There is no uniform standard for determining what is included in a severance package. Like many other employment agreements, they can sometimes be negotiable. They can vary based on the employee, or the employer’s policies, and may include different things. Most times, a severance agreement will require you to agree not to sue the employer for wrongful termination in order to accept it.
Read More About:
While severance packages vary, in many cases they are based on length of employment. For example, in a severance package, an employer might offer a week’s pay for every year someone has worked for the company. However, an employer can basically choose to offer any amount they want, so long as it does not violate any type of law.
In addition, some employers may offer different severance packages depending on the level of the employee. For instance, a company may choose to offer their executives or managers a much higher severance package than an entry-level employee.
You should be aware that severance pay or severance packages do not always come in the form of cash. Instead, some companies might:
- Extend health benefits past termination;
- Cover certain future medical expenses;
- Provide outplacement services; and/or
- Offer a range of various other employee benefits.
Sometimes, a severance package can include both cash payments as well as benefits. Again, these all depend on the employer’s policies or preferences, as well as any other pre-negotiated terms between the employer and employee.
Often, companies will have employment policies that state the way that severance packages are determined. These policies will generally include provisions like when you are entitled to severance pay; how it is calculated; and what the package will include.
This could also be addressed in an employment contract between the employer and employee. If this is the case, the employer would be legally entitled to offer you severance pay according to the contract terms.
However, you may sometimes have an opportunity to negotiate your severance package. If that is allowed, the following factors will probably be brought up during negotiations with your employer:
- Years of service with the company;
- Employee’s level or role within the company;
- The size of the company; and
- How the severance package was outlined in the company policy and/or employment contract, if any.
As with any type of employment agreement, severance packages can sometimes form the basis of legal disputes or conflicts. These can range from minor disputes to company-wide violations that affect many employees.
Some common types of severance package disputes can include:
- Discrimination with regard to an employee’s age, sex, nationality, or other characteristics (for instance, denying a severance package based solely on the employee’s race);
- Conflicts involving some type of fraud or misrepresentation in the way the severance package or pay was negotiated (for example, the employee was tricked into signing a different agreement than the one agreed upon);
- Disputes over the amount of pay, types of benefits, or other severance package terms;
- Issues with non-payment of the severance pay or withholding of the benefits after they were promised to the employee; and
- Various other conflicts.
These types of disputes can sometimes be complex and may require legal action to resolve.
In many instances, severance agreements contain clauses where the employee waives his or her right to sue the employer for wrongful termination. If this clause is in fact included in your agreement, the employer will not provide any type of severance pay unless the agreement not to sue is put in writing.
It is generally legal for an employer to provide severance packages in exchange for the employee’s release of rights. Although there are certain situations where these agreements may be held unenforceable, courts usually uphold most severance agreements. If you have accepted severance pay, and then sue for wrongful termination, then you may have to pay back your severance pay if the court decides the agreement was invalid.
On the other hand if no such waiver agreement exists, you will generally be allowed to sue in a court of law regarding a severance package dispute.
It is very important to consider how a severance package might affect your legal rights and ability to bring a claim against the employer. If you think you are being wrongfully terminated, you should contact an employment lawyer, who can help you review any documents that your employer wants you to sign. Your lawyer can explain what rights you might be giving up if you accept the severance package, and help you make the best choice depending on your situation.