What Is Severance Pay and Who Is Eligible?

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What Is Severance Pay and Who Is Eligible?

Merriam-Webster defines severance pay as “an allowance based on length of service that is payable to an employee on termination of employment.” It’s the money some people get when they’re laid off. This money is meant to help the worker pay necessary bills for housing, heat, electricity, etc. when their job ends through layoffs or termination.

Sometimes, severance pay is offered to make a company look better in the public eye when there is no option but to lay off employees. However, it can also be a heartfelt gesture when an owner appreciates the work the employee did but has to lay people off. If employees sign a contract or are unionized, severance pay may be guaranteed per the employment contract.

Explore the Two Types of Severance Pay and How They Help

There are two main forms of severance pay, and both are beneficial in helping a person through a sudden layoff or unexpected job loss that’s out of that worker’s control.

Negotiated Severance:

This type of severance pay is a negotiated severance package agreed to by both the employee and employer. It may be in the employment contract or agreed on before the employee’s job ends. If it’s drafted at the time of termination, California requires the employer to give the worker at least five days to consider that agreement. An employer cannot offer it and force the employee to sign the severance agreement right then.

Statutory Severance:

Some cities and states make statutory severance a legal requirement when a large business shuts down or a company lays off a large number of employees at once. California does not require severance pay in this situation, but the Worker Readjustment and Retraining Notification (WARN) Act may apply. It requires companies to give up to 60 days’ advance notice before mass layoffs or a plant closure.

Severance packages provide several benefits to employees, including a weekly or monthly stipend to help cover bills while finding new work or starting a new career. Training programs to gain valuable skills in another industry may be covered. Medical and dental insurance can be part of a severance package. In some cases, it may also cover some or all of the cost of relocating.

Studies find that 50% of 2,000 laid-off workers found new jobs within a month, but it took 80% up to three months. Can you afford to live for three months on the money you get from unemployment? Consider this. The average unemployment insurance benefit ranges from $40 to $450 per week. That $450 a week isn’t going to go far, and that’s if you even qualify for that higher benefit.

Who Qualifies for Severance Pay?

Here’s where it gets frustrating. California law does not require an employer to provide severance pay. Unless you’re protected with a contract, you could be out of luck.

State laws do say you’re legally required to get your final paycheck, including unused vacation pay, at the time you’re terminated. Unused sick days are not part of that final paycheck, however. Refer to your employee or union contract to see if you’re eligible for severance pay.

If you were fired from your job for failing to meet your obligations or for poor or illegal behavior, you will not qualify for severance pay in most situations. Suppose you keep calling in every Friday to have a three-day weekend. You’ve received numerous warnings, but you keep ignoring them. You arrive on Monday to learn your job is being terminated. It’s unlikely you’d get severance pay as your actions led to the termination. 

Workers in California need to keep in mind that there is an unemployment insurance program available. If you are unemployed and aren’t to blame for the termination, unemployment can help you with the loss of income for a while. There are two exceptions to this. If you quit your job without good cause, you don’t qualify. If you refuse a transfer to a position for the same pay and in the same general commuting distance, you may not qualify for unemployment.

Even Without Severance Laws, Businesses Must Follow Layoff or Plant Closure Laws

California’s WARN Act applies to any company with a minimum of 75 full-time and part-time employees. The employees must have worked for at least 6 of the past 12 months from the dates the WARN notice is given. 

In addition, any company closing a plant that will lay off at least 50 employees or require relocation of a minimum of 100 miles must give 30 days’ advance notice. If employers do not provide the legally required notice, civil penalties of up to $500 per day and coverage of medical expenses are possible.

In 2022, hundreds of employees from a major tech firm ended their normal workday, started their usual nightly routines, and received emails that their jobs were terminated. They no longer were employees. They’d not been given the required 60-day notice. The company’s owner said since those workers were offered three months of severance pay, it wasn’t truly a violation of the act. This wasn’t the first time; another tech firm with the same owner had done the same thing. Several lawsuits were filed against both companies and cases are pending.

It’s not the only case.  A major furniture company laid off thousands of its workers in a similar way, and those workers were told all benefits, including COBRA, were gone. Refusing the option of COBRA health insurance extensions also violated laws. Again, lawsuits are in the works.

Are Your Rights Being Violated?

What if you weren’t given advance notice and have no severance package to fall back on while hunting for a new job? Talk to an attorney specializing in employment law. As long as your employer meets the terms outlined in the WARN Act, you can sue for fair treatment. A California employment law firm helps you through this process, and Shegerian Conniff are experts in layoffs, severance, and WARN Act violations.

If you had a contract stating you were due severance pay and didn’t receive it, also reach out to the team at Shegerian Conniff. We’ll help you get the money you’re owed. 

Finally, you have five days to consider any severance package you’re offered. Don’t sign that agreement without talking to an attorney. Shegerian Conniff helps you negotiate a reasonable severance package. You have a lot to think about in a stressful time, so the offer you’re presented with may not be enough to cover your expenses while searching for a new job with the same wage, benefits package, and commute. That’s all worth considering before you sign.

Don’t be afraid to speak up and ask an employment law attorney for advice. It won’t cost you anything, and you have the information you need. If Shegerian Conniff takes your case, we fight for you and take our pay from the award or settlement you agree to. Don’t let the fear of having an expensive legal bill keep you from fighting for fair treatment from your former employer.

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