Perhaps you’ll be surprised to learn that there is no federal law that specifically requires employers to provide severance pay to employees when employment relationships end.
For example, the Fair Labor Standards Act (FLSA), which is considered to be the “main pay law” because it regulates employment wage and hour matters at the federal level, does not require employers to provide severance pay. Neither do FLSA-equivalent state labor laws.
Subsequently, providing severance pay is voluntary for employers, as is providing other employee benefits that are not required under laws or contracts. Many employers have traditionally offered severance pay anyway, as “conscience money” to help employees survive layoffs or to compete with other employers in the benefits arena.
However, these days employers offer severance pay mostly as a “bribe” to encourage departing employees to sign severance agreements (contracts) that waive their legal rights to sue the employers. It’s likely to be a “legal” bribe, as long an employer doesn’t also stick a loaded pistol in an employee’s ear to coerce him or her to sign.
Once severance pay is arranged between an employer and employee, whether as a “bribe” by agreement or a fringe benefit by policy, then providing it is no longer voluntary for the employer, as long as the employee did nothing to breach the contract or violate the policy.
Contracts and policies don’t always have to be in written form to obligate employers to provide severance pay. For example, if you’re a salaried employee whose employer has a long history of providing it to all salaried employees when terminating their employment under a layoff, then, technically, your employer might owe it to you too if you get the axe in the next layoff.
That’s because, under contract law, an implied contract might have existed between you and your employer, based on your employer’s tradition of providing severance pay to all salaried employees under layoffs.
Besides contract law, other laws too might function as “severance pay laws” so to speak. For more information, read Severance Pay.
Consult an attorney for legal advice, such as whether or not you ought to waive your legal rights by signing a severance agreement. To avoid potential enforceability problems, a wise employer will give you a reasonable amount of time to sign so that you may just as wisely consult an attorney about signing away your legal rights.