United States

The rules on severance pay in detail

In the United States, there is no law that requires that employers provide severance pay upon termination. Severance pay is a matter of contractual agreement, and therefore it is only required if a written agreement or governing collective bargaining agreement exists between the parties that sets out its terms and conditions.

However, note that federal law and some state laws have WARN Acts (Worker Adjustment and Retraining Notification Acts), which place certain advance notice and other procedural requirements on employers who take action resulting in the employment loss of a large number of employees. For example, the federal WARN Act requires employers to provide 60 days advance notice of any plant closing (resulting in the employment loss of 50 or more employees over a 30-day period) or mass layoff (employment loss of 500 or more employees, or employment loss of 50 or more employees if they constitute at least 33 percent of the workforce). Failure to provide the requisite 60-day notice can result in the employer being liable for, among other penalties, back pay for the period notice was not given.  

Some states have their own state WARN Acts which impose different requirements, and in some cases also require severance be paid should violations occur. In New Jersey, for example, employers who fail to give 60 days’ notice of a mass layoff (same definition as the Federal WARN Act) or a Transfer or Termination of Operations (affecting 50 or more full-time employees), will be obligated to pay severance pay to each employee who failed to receive 60 days’ notice, in the amount of one week of pay for each full year of service. Since state laws vary, employers should consult the applicable state law if action is taken that could result in the employment loss of a large number of employees.

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Author: Fordharrison 

Date: December 2018


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