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You are Here: Home > Wages & Pay > Severance Pay - 2

Severance Pay

Severance Pay Laws

Contrary to popular belief, there are no U.S. "severance pay laws" per se that require employers to offer severance pay to departing employees.

Many employers have historically offered it anyway as a voluntary benefit, to attract new employees and as "conscience money" to help their former employees survive mass layoffs.

But, these days, it's likely that a hidden agenda behind severance pay is to "bribe" employees to waive their legal right to file lawsuits against the employers (as previously explained).

Some might think that the Fair Labor Standards Act (FLSA) and state equivalents function as employee severance pay laws, because they regulate employee compensation matters such as minimum wage and overtime pay.

But, again, there are no severance pay laws per se. Under the FLSA and state equivalents, severance pay is generally considered to be a matter of agreement between employers and workers or employers and unions. However, other laws might effectively function as employee severance pay laws, so to speak.

For example, what are generally called contract laws might function as severance pay laws, if employees or independent contractors (ICs) work under explicit contracts that promise severance pay. If employers refuse to issue contractual severance pay without good cause when the time comes, then affected employees or ICs might have grounds for lawsuits against the employers for breach of contract.

Did you know?You might be working under an explicit contract without knowing it. For example, you might have signed an employment agreement during new-hire orientation day, that constitutes an explicit contract. Check all of the paperwork that you signed when hiring on and during your employment.

A similar situation might exist if employees are working under implied contracts that infer a promise of severance pay, but employers renege on the inferred promise without good cause. For example, if your employer has historically offered severance pay to departing employees who worked in positions similar to yours, then it might constitute breach of implied contract if your employer refuses to offer it to you.

Discrimination laws might also function as severance pay laws, so to speak; for example, if your employer offered severance pay to every laid-off employee in your department but you, then it might have been discriminatory if your employer's decision was based solely on your age, race, gender or one among the other factors that constitute employment discrimination.

Although there is no Federal law that requires employers to establish severance plans, once voluntarily established, then the Employee Retirement Income Security Act of 1974 (ERISA) and related rules and regulations might function as a severance pay laws of sorts. ERISA requires covered employers to establish and maintain such plans fairly, soundly and with accountability.

Under the Worker Adjustment and Retraining Notification Act (WARN) or an equivalent state law, employers might be required to give advanced notice (e.g., 60 days) of layoffs or plant closings to affected employees. If so, employers must continue to pay affected employees through their notice periods, even if employers do not require affected employees to work.

Don't let your employer fool you into believing that your regular pay through your WARN notice period (or pay in lieu of notice) is the severance pay due to you by an explicit or implied contract. It's not unheard of for naive or unethical employers to claim such.

Because there are no severance pay laws per se, there are also few regulating governmental agencies with which to file a complaint, should you reasonably believe that your employer illegally deprived you of severance pay. Subsequently, consulting an attorney might be your only choice for seeking relief.

However, if you didn't receive severance pay required by contract, then, if ERISA applies, the Federal Employee Benefits Security Administration (EBSA) might help you to collect it. Although not required, hiring an attorney might be a good idea before contacting the EBSA. An attorney can help you to better present your case using legalese, to increase your chances that the EBSA will act on your behalf.

While there are no employee severance pay laws that require your employer to offer it, there are also no employee severance pay laws that say you can't try to negotiate it, whether you resign, get fired or laid off. You've got some leverage, because employers typically want to avoid lawsuits, attrition and bad-mouthing.

For example, if you get laid off and the word spreads that you didn't receive severance pay, it might discourage remaining employees into believing that they won't receive it either. That can create disgruntled, bad-mouthing employees, some of whom might also jump ship.

But, of course, it's not a good idea to threaten your employer with a lawsuit, bad-mouthing and such. If you're not comfortable negotiating severance pay, consider letting an attorney handle it.

Naturally, to make hiring an attorney worthwhile, he or she will have to win enough money in or out of court to pay your legal fees, with a sufficient amount left over to spend as you wish. That should be among the first topics you discuss with an attorney, before hiring him or her to negotiate or sue for severance pay on your behalf.

If your attorney thinks you've got a good shot at winning a sizable amount, then he or she might take your case on contingency.

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