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Employers Not Required to Provide Severance Pay


Q: Is there a law that requires employers to provide severance pay?
A: No. An employer has no obligation to provide severance pay. The only benefit that employers must by law provide when an employee is terminated is unemployment compensation.

Q: I've heard that my employer has a severance plan. If so, am I entitled to benefits?
A:
 It depends on the severance plan. Although an employer has no obligation to provide severance pay and most employers do not have a severance plan, some employers choose to create a severance plan. Employers are free to define the severance terms, including who participates and which terminations are covered. Once an employer creates a severance plan, the employees covered by the terms of the plan are entitled to the benefits that the plan provides. Importantly, however, an employer may then modify or abolish a severance plan as it sees fit. If your employer has a severance plan, you are entitled to a written summary description of it. The plan descriptionwill tell you what, if anything, you are entitled to receive.

Q: My company has always paid severance, but now company officials say they do not have a severance plan. Do they have a severance plan or not?
A:
Unless it is written, it may be difficult, though possible, to prove that your employer established a severance pay plan by providing severance to employees that have been terminated in the past. You must be able to show such a predictable pattern of severance benefit payment that you could tell:
· who was eligible for benefits;
· when they would become eligible;
· how much they would receive; and
· the source of those payments.
Unless the employer has been consistent in the past, you may have trouble proving that a severance plan existed.

Q: I have to agree not to sue my employer in order to receive any severance benefits. Is that legal?
A:
Yes. If the plan requires you to release your rights (i.e., promise not to sue) to receive payment of any severance benefits, you must agree not to sue your employer in order to receive them.

Q: The severance agreement gives me no less than 21 and no more than 45 days to consider the offer. What does this mean? Can I accept it before 21 days have passed?
A:
The waiting period is for your benefit. Generally speaking, if you want to accept the offer before the end of the waiting period, you can do so. Most severance agreements require a promise by you not to sue the employer as a condition of getting the severance payment. Take, for instance, age discrimination. In order for your promise not to sue for age discrimination to be enforceable, employers must give you time to consider any offer. This is designed to prevent "gun to the head" decisions by employees. As a legal matter, the employer cannot rescind the offer during the waiting period, but must give you time to consider it. But note that not all types of legal claims have a mandatory waiting period like this.

Q: What happens to the waiting period if I ask my employer for a better package?
A:
Technically, once you ask for a better package, you have "rejected" the employer's offer by making a "counteroffer," which the employer can accept or reject. By making a counteroffer, you run the risk of losing the guaranteed offer. In practice, most employers will not rescind their offer if you make a counteroffer, but will leave their original offer on the table if they do not want to negotiate. You must be prepared, however, to lose the employer's offer if you make a counteroffer.

Q: How can I tell if I should accept severance pay in exchange for a release of rights?
A:
The answer is to compare the value of the severance package against the value of the claims that you will release. Consult legal counsel to evaluate any claims that you may have. Find out what your claims would be worth should you take your case to court and win. Also, ask your attorney to estimate your chances of winning and the attorneys' fees and court costs you would pay in an effort to win. You should then compare your employer's severance offer with the value and costs of litigating your claims (plus other factors, like the aggravation and uncertainty of a lawsuit, and how long you can afford to wait for compensation if you don't accept the offer).

Q: Are there any "rules of thumb" for how much severance an employer will pay?
A:
No, but there is some consistency in how employers determine severance pay. Remember that an employer has no obligation to provide severance payments. Also, employers that do provide severance payments rarely offer them to hourly workers. That said, severance agreements may provide a week or more of pay per year of service. In addition, some severance plans cap benefits at a specified level, such as one week or month of severance pay for the first 18 years of employment.

Q: What happens if I turn down the severance offer?
A:
Decide whether or not to pursue your claims. You must do this quickly. In Ohio, you must file certain age discrimination, whistle-blower, and other actions in six months or less, and some retaliation claims within 90 days. Therefore, seek qualified legal counsel quickly.

Q: Can I go back to work for my old employer after accepting a severance package?
A:
It depends on the severance package. If the release says nothing about going back to work, you are free to apply for an available position, like any other new applicant. Some employers, however, condition severance on your agreement not to be rehired.

1/3/2013

This "Law You Can Use" consumer legal information column was provided by the Ohio State Bar Association (OSBA). It was originally prepared by Neil Klingshirn, an attorney who is an OSBA Board Certified Employment Law Specialist and a partner with the Akron-based firm of Fortney & Klingshirn. It was updated by Columbus attorney Jeffrey P. Vardaro of The Gittes Law Group.

Articles appearing in this column are intended to provide broad, general information about the law. Before applying this information to a specific legal problem, readers are urged to seek advice from an attorney.

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