Severance Laws

In reality, there are no "severance laws" per se to govern how a particular company might issue severance packages to departing employees. Even under the federal Fair Labor Standards Act, severance is regarded as a private matter between employer and employee. In practice, however, severance pay is becoming quite common. This is true for both "at will" employees, and those under written contract. Severance pay is typically granted to employees who are being laid off. The amount of pay given varies from company to company, although most use a formula that takes into account seniority and position within the particular business. In addition, if an employee's contract stipulates that he will receive severance pay upon termination but does not receive it, the federal Employee Benefits Security Administration can help to collect it.

Fast Facts

  • Severance packages may include cash, stock options, bonus payments, and/or forgiveness of loans.
  • If employees are not satisfied with severance packages, they are advised to seek legal counsel.

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