Offering Severance Pay When Terminating an Employee: Key Considerations
Navigating Severance Pay: When and Why Should Employers Offer It?Terminating an employee is a challenging decision that often comes with important considerations, one of which is whether to offer severance pay. In this guide, we'll explore the ins and outs of severance pay, helping you understand when and why it might be beneficial for both your business and the departing employee.
What is Severance Pay?Severance pay represents a financial package offered by employers to employees transitioning out of the company. It extends beyond regular wages and often incorporates supplementary perks like ongoing health insurance coverage and support with job placement. Of significant importance in an employer's determination to provide severance is the inclusion of a legal claims release within these agreements.
Is Severance Pay Required by Law in Massachusetts?Unless you have a prior employment contract with the terminated employee that explicitly outlines severance terms, there is no legal obligation to provide additional compensation beyond their last paycheck, commissions, and accrued vacation time. However, it's common for employers to choose to offer severance, either as a company policy or to mitigate potential legal risks.
Mitigating Legal Risks: The Primary Consideration for Offering SeveranceIn most cases, when you make the difficult decision to terminate an employee, you may not believe they have valid legal claims against your company. Consequently, many employers hesitate to provide severance, particularly when an employee is let go due to poor performance or problematic workplace behavior.
However, it's crucial to bear in mind that the cost of defending against a groundless claim can be as substantial as defending a robust one. This means that even if you ultimately prevail in a lawsuit, you could still incur tens of thousands of dollars or more in legal fees. It's a compelling reason why many employers opt to offer severance, even when they do not perceive any credible legal claims that could be brought against them. How to Calculate a Fair Severance PackageWhen your primary objective is to minimize legal risk, it's important to offer a severance package that strikes a balance. It should be sufficient to make the departing employee comfortable signing the agreement while avoiding the impression that you anticipate a lawsuit. This juncture is an ideal time to seek guidance from an experienced employment termination and severance attorney, who can provide expert advice tailored to your specific circumstances.
In addition to legal counsel, several factors come into play when determining a fair and reasonable severance amount: 1. Length of Employee's Service:
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Severance Pay and Its Impact on Unemployment Benefits
It's important to understand the relationship between severance pay and unemployment benefits. If your severance agreement includes a release of claims (as it typically should), the employee is eligible to collect unemployment benefits concurrently, regardless of whether the severance is provided as a lump sum or through salary continuation.
Conversely, if you opt to offer severance pay without stipulating a release of claims, the employee will need to wait until the severance payments have been depleted before becoming eligible to receive unemployment benefits.
Conversely, if you opt to offer severance pay without stipulating a release of claims, the employee will need to wait until the severance payments have been depleted before becoming eligible to receive unemployment benefits.
Meet Our Employment Lawyers
Emily Smith-Lee is the owner and founder of slnlaw. She is a 1996 graduate of Boston College Law School. She was previously a partner at the Boston office of a large international firm, where she worked for thirteen years before starting the firm that became slnlaw in 2009. She has been recognized as Massachusetts Superlawyer each year since 2013, and in 2018 earned recognition as one of Massachusetts Lawyers Weekly's Lawyers of the Year. She has written a book on employment law: Rules of the Road, What You Need to Know About Employment Laws in Massachusetts, and helped thousands of clients on both the employee and employer side with severance and non compete review and negotiation, wage and hour, discrimination and retaliation disputes, and advice about employment law generally.
Rebecca Rogers: Rebecca is a 2006 graduate of Boston College Law School, and has worked with slnlaw since 2013. She previously worked as an intellectual property litigation attorney for Fish & Richardson in Boston, Massachusetts, and clerked for the Massachusetts Supreme Judicial Court. Rebecca has helped clients with wage and hour disputes, employment discrimination and retaliation claims, review and negotiation of severance and non compete agreements, and advice to both employees and employers about navigating complex employment situations.
Jenna Ordway: Jenna is a 2013 graduate of Quinnipiac Law School, and also earned an LLM in Taxation from Boston University in 2015. She has been affiliated with slnlaw since 2011, first as a law clerk and then as an attorney. Jenna has been recognized since 2019 as a "Rising Star" by Massachusetts Superlawyers. Jenna has helped clients with review and negotiation of severance and non compete agreements, wage and hour disputes, employment and discrimination claims, and advice to small business owners about employment law and other business matters.
Elijah Bresley: Eli is a 2014 graduate of Seton Hall Law school, and has worked with slnlaw since 2020. He previously worked for a boutique employment law firm outside of Boston, and then for the Labor and Employment department of a large Boston firm. He also spent a year clerking for the judges of the Superior Court in Hartford, Connecticut. Eli has helped clients on the employee and employer side with all varieties of employment law issues, including employment discrimination, retaliation, and wage and hour issues, litigation in MCAD and state and federal courts, and advising employers about employment policies and practices.
Sharleen Tinnin: Sharleen is a 2010 graduate of Northeastern University School of Law, and has been with slnlaw since 2023. Prior to joining slnlaw, she worked with King, Tilden, McEttrick & Brink, P.C. on complex civil litigation matters. She previously worked for the United States Department of Justice, and received an "Excellence in Justice" award in 2017. Sharleen has helped clients with wage and hour, discrimination and retaliation disputes, review and negotiation of severance agreements, and litigation in MCAD and state and federal courts on employment related issues.
How We Can Help
Our team of skilled employment attorneys is here to assist you in understanding and managing severance pay matters effectively. You can use the button below to schedule a call back from a member of our team, or give us a call at 781-784-2322.
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