Should You Offer Severance Pay? | Mann & Elias
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Should You Offer Severance Pay?


Running a business is filled with challenges. You must make difficult decisions all the time. When it comes to your most important asset—your people—your decisions must be clear, intelligent, and measured. Whether to pay severance to people whose employment you have terminated is something you should decide straightaway. Moreover, you should have a detailed policy on it.

There is no law or widely accepted rule that states you must pay severance—a combination of money and benefits—to employees you have fired. In most cases, this is a matter of discretion. You should therefore gather the facts before you make a policy. An employment attorney in Los Angeles with insight into termination cases can help you make good and financially sustainable decisions.

Circumstances That Compel You to Pay Severance

There are only two instances in which you must pay severance. The first is when the state you are operating in requires it. Some states have laws that mandate employers laying off a large number of workers to pay a small amount of severance money.

The second instance that legally binds you to pay severance is when you have led employees to believe you will. The following can be used as proof that you owe fired employees severance pay:

  • A written contract guaranteeing severance
  • A promise of such pay in an employee handbook or published personnel policy book
  • A history and precedent of paying severance to employees in the same job
  • An oral promise that the employee would receive severance pay

Even if you are not legally required to pay severance, it can make good business sense to do so. Many companies offer generous packages to employees who have been with them for a long time but had to be let go for reasons other than misconduct. Large companies that undergo periodic restructuring will have employees whose skills and knowledge are no longer relevant. These companies tend to offer them help finding new jobs, extended health care benefits, and a decent amount of money. They do it because it is the just and humane thing to do. They also do it to minimize the chance of a lawsuit or of an attempt at sabotage. Employees who have been with a company for a long time may know a great deal about the people in it and the way that it operates. This information can be used against the company, which can lead to a great many problems.

If you run a smaller company and must let go of relatively young employees who have been with you for a short amount of time, it may be even more important to offer a severance package. Such persons will probably be fresh and knowledgeable enough to be recruited by rivals. You want to reduce the chance that former employees will leave with bitterness. Offering them a decent severance package is a sign of fair play; it also shows that you value their worth and the time and energy they have dedicated to the company. Most former employees will respond positively to such treatment and will depart in peace.

What Should Be in the Package

Many combinations of pay and benefits are acceptable. And it is perfectly acceptable to tailor the severance package to each individual or to the needs of the kinds of people who compose your workforce.

Here are some of the things you should include:

  1. MoneyAny severance package should include money. Your people will need it just to get by until they find another job. You should offer at least a month’s salary for every year of employment.
  2. InsuranceMost people still get their insurance through work. For many people with families, the biggest blow to losing their job is losing their health insurance. Federal law requires some employers to offer to continue group health insurance without paying for it. However, you should offer to continue paying for coverage for some period of time after the employee is fired. You may live in a state that requires employees to continue coverage for a set period of time. 
  3. Uncontested employment benefitsIf you are firing an employee for any reason other than misconduct, they will be eligible for unemployment benefits. If you do not contest their claim, then they will receive it.
  4. Placement servicesEstablishing a robust placement program can help the former employee find work. The most valuable features of such a program include leads for new jobs and help in negotiating with potential employers.
  5. ReferencesIf the person you had to let go was a good worker with solid credentials and qualifications, then you should write them with a good letter of reference and recommendation.

This does not exhaust the list of things that can be included in a severance package. The longer an employee has been with you the more open you should be to negotiate with them. This is especially the case when you must let go a senior executive. In these cases, it is good to have an attorney by your side regarding any discussions on severance pay. 

Putting Your Company in the Best Position

As an employer, it is important to know your legal strengths and weaknesses when creating a policy. If you must be able to answer questions, and communicate with your employee’s legal team following their job termination. The aim of severance pay lawyers in Los Angeles is to help you establish a severance policy that is fair, humane, and financially viable. This is the only way to protect your company against litigation. Experienced attorneys help companies do the right thing by employees they must let go.


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