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Are Companies Required to Give Severance Packages?

Companies are not required to give severance packages to all employees. There are only two exceptions when a company is to give severance packages. First, some states have laws that require employers to offer terminated employees severance pay when their terminations are due to a facility closing or the company is laying off a large number of employees. In these situations (and depending on the state’s laws), employers may be required to give a small amount of severance pay. To find out more about the laws in your state, you should contact your state’s labor department.

As for the second scenario, employers may be legally required to provide terminated employees with severance pay if they led their employees to believe that they would be paid severance. This is often evidenced by a written contract that calls for a severance package, a promise contained in an employee handbook that tells employees that they will receive severance pay if they are terminated, a history within the company of giving severance packages to other employees that are in the same or substantially the same positions as the terminated employee; or an oral promise from the employer to the employee that he or she would receive severance pay upon termination.

There are many employers that often give severance packages to long-term employees that have been with the company for a substantial period of time, even without a legal requirement to do so. In addition to some employers feeling that this is the right thing to do to reward the employee’s loyalty and hard work, it often softens the blow that can come with termination and can discourage a former employee from pursuing a lawsuit against the company. If you do decide to give severance packages to some employees, you must be consistent in who you give severance package to. If you only want to provide severance to a group of professionals in the company, be sure to draw a clear line. This does not mean that you must provide equal amounts of severance pay to each employee that has been determined will be given a severance package as each package will vary depending on the employee’s tenure and what sort of resources, services and benefits have been provided to the employee. Employers are not required to give severance packages but if they are given it should be done in an equitable manner where an employee’s longevity, worth and value are represented in the package.

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