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Jane T (LLC)
Jane T (LLC), Lawyer
Category: Employment Law
Satisfied Customers: 8435
Experience:  Worked with employment legal group in major national corp.
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Is a company legally obligated to pay severance to an employee

Resolved Question:

Is a company legally obligated to pay severance to an employee whose job is being outsourced? Are there any parameters that are set by the government (Texas or Federal)? Is a company legally bound to honor its own written “policy and procedures” regarding a severance package?
Submitted: 8 years ago.
Category: Employment Law
Expert:  Jane T (LLC) replied 8 years ago.



Unless a private company is required to pay severance under the WARN Act (which requires employers with at least 100 workers who are closing down a plant or having a "mass lay off" see here for more information about where Warn Act applies) it is up to a private employer to pay severance or not. Where a company has established policies or contracts with employees regarding severance, the amount to be paid, who is to receive it, under what conditions, etc., then those policies or contracts may be enforceable by an employee through a civil court action they file if an employer refuses to follow its own policies where those policies are mandatory.



Customer: replied 8 years ago.

Here are some excerpts from the policy. The company is offering a portion of the severance to us but not all that has been recently given to other employees in the same circumstance.

E. Reduction in the Workforce. It is the intent of the Company to provide a fair and consistent basis for reductions in the workforce. All personnel policies including the Company’s policy against unlawful discrimination shall be followed. Reductions in workforce may be implemented on a Company-wide basis or in one or more divisions, departments, work groups or job classifications.

If a reduction in the workforce becomes appropriate for any reason, positions may be eliminated, consolidated, or otherwise affected. If more than one employee is in such position(s), the Company will select the person or persons to be laid off based on its judgment of Company needs and Employee skills. Employees laid off by this process may request consideration for any current openings in the Company, for which they are qualified, but they are not entitled to displace current employees. Employees on a leave of absence when a reduction in the workforce occurs are considered part of the workforce for the purpose of layoff.

I. Severance Benefit. Severance Pay may be granted when an employee is terminated involuntarily for reasons other than cause. All Full-Time and Part-Time regular employees will be eligible for Severance Pay provided they meet the terms set forth in this paragraph. Any exceptions will be made at the discretion of the President of TABS.

(1) All Full-Time and Part-Time Regular Employees. The following schedule is provided as a guideline to calculate the duration of Severance Pay:

(a) Length of Service

(i) Less than 90 days No Severance Pay

(ii) 91 days of service One week of Severance Pay (base or adjusted) per year of service

Calculation for Years of Service

Years of service will be counted by whole months and rounded (less than 6 greater than 6) to whole years from the most recent hire date.

(b) Level of Salary

(i) Annual Base Salary One week of Severance Pay per $10,000 annual base salary

(ii) Annual Base Salary for the following two groups of employees will be calculated utilizing the following method.

(1) MIP Participants. Annual base salary shall be computed using the employee’s base pay plus one-half (1/2) of their targeted annual MIP bonus.

(2) Sales Commission Participants. Annual base salary shall be computed using the employee’s base pay plus sales commission performance over the most recent (and available) six month period.

(c) Calculation for Level of Salary

Annual salary will be rounded (less than 5 greater than 5) to whole $10,000 units.

(d) Maximum Severance Benefit.
Regardless of tenure or compensation, total severance benefits for both length of service and level of salary, will not exceed thirty-nine (39) weeks.

(e) Pay-out of Severance Benefit.
Severance benefits will be paid out upon the termination date. The satisfactory execution of a Company provided “Settlement and Release Agreement, may be required which may delay the payout of severance relating to the prescribed waiting period identified within the agreement.

(f) COBRA Severance Benefits.
Employees will be entitled to COBRA benefits:

Provided that the employee elects COBRA benefits, the Company will pay 50% of the monthly COBRA premium for the same number of weeks that the severance represents or for the same number of months that the employee elects COBRA – whichever is less. COBRA benefits will be calculated based on the same criteria utilized to calculate severance pay which is outlined in paragraphs (a) and (b) above. In order for an employee to claim and continue this benefit, the employee will be required to make a monthly payment equal to 50% of the premium prior to the established payment deadline. This is to cover health benefits (medical, dental, vision, EAP/managed health benefits only). All other benefits cease at the time of termination. In the event that the employee and/or dependents need to continue COBRA beyond the timeframe allotted in their severance benefits, they will be required to pay the monthly COBRA premium at 102%.

(2) Approval for Severance Pay must be obtained, in advance, from the Division General Manager and the Human Resources Vice-President.

(3) Should an employee be reinstated or rehired by the Company, Parent, Subsidiary or Affiliate, the employee shall reimburse the Company, at the time of recall, for severance pay in excess of the actual time on layoff. The Company may arrange a repayment plan.

Expert:  Jane T (LLC) replied 8 years ago.



I cannot provide an interpretation of any contract or policy as I can only provide information. The information I can provide is that words such as "may" or "can be" tend to be used to provide a party the option to do or not do something at their discretion and they do not normally create "requirements" or binding obligations. This normally means that where these words are used, in reference to the subject they discuss, a party can then retain full control over whether or not to do something, such as hire, fire, or provide a benefit or payment. Also, simply because past severance packages have been paid does not mean an employer then becomes obligated to offer the same package later on (unless the difference is due only to discrimination based on race, age, religion, disability, etc.).



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