Terminations and the Law — Severance

Devora L. Lindeman, Esq., Partner at Greenwald Doherty LLP, is providing us with insight and information regarding the hiring process. Ms. Lindeman is a management-side employment lawyer and has exclusively represented managers and companies in federal and state agencies and courts with regard to their labor and employment needs for many years.

Questions addressed to Ms. Lindeman may be addressed in this column.

Hiring and the Law
By Devora L. Lindeman, Esq.*

Question: I’m letting an employee go on Friday. Do I need to give her two weeks of severance?

Answer: As I’ve said in a number of my columns—that depends. The answer depends on a number of factors including whether you have a contractual obligation to the employee to pay severance, if you have a policy or severance plan guaranteeing severance pay to your employees, or if you have a practice of paying severance pay to similarly situated employees that you let go in the past. It also depends on certain legal considerations that I will discuss below.

Even though “everyone knows” that you are supposed to get two weeks’ notice or two weeks’ severance pay when you are let go from a job, this is not actually the case in the U.S. There is actually nothing under U.S. law that requires an employer to provide severance pay to an employee who has been discharged unless that employer has created the obligation him or herself. The “two weeks’ notice/two week’s pay” guarantee comes from union collective bargaining agreements. Most unions have negotiated that guarantee. But unless you have a unionized workforce with such a provision in an agreement, or have otherwise guaranteed severance through a policy, plan or practice, nothing requires that you give an employee you are letting go any additional compensation as severance.

That said, there may be legal considerations that weigh in to the determination as to whether to provide severance pay or not. These are issues that you should likely discuss with an employment attorney but such situations arise when either (a) you are letting an employee go who has already raised an informal legal claim against your company or (b) you are letting an employee go under circumstances that may tend to appear to be discriminatory, even when they are not.

In the first instance, you may have an employee who is performing poorly and who is being performance managed to try to get her to improve. When she sees the handwriting on the wall that she is about to be let go, she may claim that she was being sexually harassed in an effort to divert attention off her, or to try to protect her job. Of course, you need to take the complaint seriously, investigate it, and take whatever action you deem appropriate to stop any harassment you confirm. However—if you let that employee go after such an investigation it could appear that you were firing her in retaliation for making a sexual harassment complaint. In such an instance, and to avoid a retaliation claim, it may be prudent to offer some amount of severance in exchange for the employee signing a severance agreement waiving all legal claims against the company. That way, the business can have closure on the situation.

Similar situations arise when a company is looking to terminate an employee who just advised that she is pregnant, or he has cancer, or who has become too elderly to perform at the necessary speed. Providing severance pay (along with a severance agreement drafted by an attorney) can be a way to ease an employee’s transition out of the workplace, and avoid a discrimination lawsuit that can be costly and time consuming.

Thus, the answer to your question most likely is “probably not.” But this is a situation where a call to your local employment counsel to discuss the facts of this particular situation may be prudent to prevent other legal headaches down the road.

*Ms. Lindeman is a Partner at Greenwald Doherty LLP, a law firm that exclusively represents businesses in all aspects of labor and employment law.  These columns are intended to be general information regarding the topic discussed and are not to be considered legal advice regarding a specific situation. Contact a management-side employment attorney familiar with the law of your jurisdiction for specific advice.  Ms. Lindeman is admitted to practice law in NY and NJ and may be contacted at DL@greenwaldllp.com.  She is under no obligation to respond to reader inquiries personally, but may answer general employment law questions through this column.

© 2011 Greenwald Doherty.  May not be reprinted without permission.

As the law varies in each area, please check with an attorney to ensure you are applying these tips within the law.

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