Severance Pay Laws

What is severance pay? Severance, although not a required benefit, may be given to an employee upon job termination. Employees are not automatically entitled severance pay, and employers have no obligation to provide severance and typically don’t provide severance package rights to hourly wage earners. In addition, all severance pay has severance pay tax levied on them. State laws protect hourly wage earners by providing unemployment compensation insurance programs that mandate an employer’s participation. Severance pay is usually one part of a severance package that an employer commonly reserves for his upper level employees. An employee may receive severance pay if a company, as part of its employment policy, has a severance plan. If such a plan does not exist, the terminated employee may look to negotiate a severance package with his employer. When faced with this situation the assistance of an experienced employment lawyer can help insure a valid agreement, especially under disability severance pay and military severance pay laws.

Considering Severance for Employees Laid Off

Employers should consider the following issues when considering a severance package:

• Financial Terms
  
• Continuation of Benefits
  
• Claims to be Waived
  
• Trade Secrets
  
• Confidentiality

Whether an employment situation is terminated by an employer or an employee, a severance payment can be beneficial to both parties. Obviously an employee who loses his job has an interest in receiving income while looking for a new position. The benefit to the employer is an agreement by the employee not to bring a lawsuit against the employer in exchange for the severance package. So in fact, unemployment severance pay is a contract between the terminated employee and the employer. This contract protects an employer from a lawsuit while providing a package of benefits to the former employee. When termination is a result of an employer’s decision, the offer of a severance package should be carefully considered since an employee who signs such a contract may be waiving rights to a lawsuit that may be worth more than the provisions of the severance package contract provides. A competent employment attorney can help sort out these complicated issues.

The loss of employment can create unwanted stress in the life of a terminated employee. Since there is no requirement in the Fair Standards Labor Act to provide severance pay the employer and employee must reach a mutual agreement for this to happen since in other words, there is no such thing as a severance law. These agreements are beneficial to both parties, however in order to insure a fair and valid contract an employee should retain an experienced employment lawyer to help protect his rights.

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