Severance Pay Explained: What to Expect If You Get Fired

You may have heard about the general increase in layoffs that started in 2022, ramped up in 2023, and is now continuing into 2024. Over 222,000 employees in the tech sector were laid off in 2023 alone, although the total number of people who were let go across industries in the same year is 1.64 million. Apparently, 21% of organizations already are planning to make some of their workforce redundant in 2024.

As unpredictability in work environments grows, it’s now more important than ever for you to spend some time learning about your future security and peace of mind. And severance pay is an important part of that equation. But it doesn’t have to be overwhelming – this post will give you a solid understanding of severance policies and what you are entitled to.

Although if you think that there’s a strong chance you might be handed the “pink slip”, it would be best to consult with an employment lawyer. They can educate you on the average severance packages in your industry for your role and make sure you aren’t taken advantage of during the negotiations.

At Hershey Law, we help review and negotiate severance agreement terms to protect your interests. Employers often draft one-sided contracts that may even violate the Employment Act. Our seasoned attorneys fiercely support you, ensuring the agreement doesn’t waive your essential rights. We also help calculate your severance pay and benefits, securing the fair amount you deserve. Reach out to us today for the guidance you need during this challenging time.

👉Also Read: What Happens If You Don’t Sign a Severance Agreement?

What is Severance Pay?

It’s a financial package that most companies offer to employees when they have to let them go, not because of poor performance or misconduct, but due to larger factors like downsizing or restructuring. They are not legally required to do this, so it’s more about protecting themselves from liability and neutralizing any hard feelings by giving terminated employees some financial breathing room while they look for new opportunities. This is why severance packages typically come with a condition that you agree not to pursue legal action against your employer (aka wrongful dismissal claims).

Losing a job is tough and an exit package is essentially a way to soften the blow. Besides money, these can sometimes include benefits such as continued health insurance or career counseling to further ease the transition to another job.

What Is Included in a Severance Package?

How much is termination pay depends on the company’s policies, the circumstances of the exit, and the employee’s role. Based on that, there are two common, fixed components:

  • The actual severance amount in lump sum (based on – in most cases – a certain number of weeks’ pay for each year of service).
  • Payment for accrued vacation time, sick leave, or other paid time off that you have not yet used.

Under the COBRA (Consolidated Omnibus Budget Reconciliation Act), some laid-off employees may also have the option to continue their health insurance coverage for up to 18 months after leaving their job (or 29 months if they are disabled).

Beyond these, there are some extra severance benefits your package may include, depending on your employment contract:

  • Bonus payments
  • Stock options or equity
  • Outplacement services (assistance with job searches, including resume help, career coaching, or access to job placement services)

Do You Get Severance If You Get Fired?

There are no legal requirements or federal law for employers to offer a dismissal or redundancy package at the time of termination of employment. The Fair Labor Standards Act (FLSA) does not have any such provisions either. You can only expect to be paid if:

  • Your employer has a policy of providing severance agreements; or
  • It’s included in your employment or union contract.

The only exception, however, is under the Worker Adjustment and Retraining Notification (WARN) Act. It applies to larger companies with 100 or more employees. If they conduct a mass layoff without giving at least 60 days’ notice, they may be required to provide severance pay as compensation for the lack of notice.

What If the Company Refuses to Pay?

If your employer has established guidelines on if and how to pay severance pay, or if it’s stipulated in your employment contract that you are entitled to severance pay – they are legally responsible for paying. But if they have failed to honor the severance agreement, you can take the following steps:

Review Your Contract

Carefully read the terms of your job agreement or any relevant employee handbook or HR guidelines where severance pay terms are described. You need to confirm that it is indeed promised. Look for clauses related to the duration of employment required, the amount of severance, and any conditions under which severance might be withheld (such as in cases of termination for cause).

Contact the HR Department

Next, get in touch with the Human Resources Department or your immediate supervisor to discuss the issue. Prepare to present all documentation or evidence you have to support your claim. You’ll be surprised how many clerical errors are made; most disputes can be resolved internally without the need for legal action. Schedule a formal meeting and follow up in writing.

Submit a Demand Letter

Write a letter to your employer demanding your dismissal package. This should include the date of your termination, the amount you believe you are owed, and references to the relevant contract or policy clauses. A formal letter might be all you need to prompt them to act, as it indicates your seriousness about pursuing the claim. Make sure to keep the tone professional and factual. You might want to specify a reasonable deadline for payment and mention that you are considering further legal steps if the matter is not resolved.

Consult With an Employment Attorney

If internal efforts and demand letters do not resolve the issue, contact a lawyer who specializes in labor laws in your state. They can guide you on the best course of action and evaluate the strength of your case. If all else fails, they might suggest filing a lawsuit to enforce your rights through the courts. They may even help you file a complaint with your state’s labor department or the federal Department of Labor if your severance pay issue is part of a broader violation of employment laws.

How Much is Severance Pay?

There is no universal formula to calculate severance pay. It varies widely from company to company, and different industries tend to have different standards. One week per year of service is a common baseline for non-executive roles, even though it is considered at the lower end of what companies might offer.

If your company policy states that each employee receives one week of regular pay for each year of service as severance, your weekly salary is $1,200 and you have worked there for 8 years, you will be paid $9,600 (weekly pay x years of service).

Two weeks per year of service is frequently found in middle-ground policies. It’s most common in industries like banking or financial services. So, if you have been with the company for 10 years and your annual salary is $80,000 (approximately $1,538 per week), your package will come down to:

10 years × 2 weeks/year × $1,538/week = $30,760.

Four weeks per year is seen as very generous severance pay calculated and thus, reserved for higher-level executives or long-tenured employees at a company.

👉Also Read: Severance Agreement Demystified: What Every Employee Should Know

How To Negotiate Your Severance

When you are made redundant as part of a larger group or restructuring, there might be room to negotiate your severance terms based on your tenure, role, or contributions to the company. It never hurts to ask. You have a higher leverage if you believe there was discrimination, or you are being asked to waive certain legal rights.

Here are some actionable steps to make sure you are fairly compensated upon leaving a company:

Understand Your Eligibility and Rights

Before you negotiate, understand what you are legally entitled to and what your company usually offers. Review your employment contracts, company manual, or any policies related to severance. Know if there is discrimination or wrongful termination at play that could affect your exit package.

Prepare Your Case

Gather evidence of your contributions, performance appraisals, and any commendations or awards to demonstrate your value to the company and strengthen your position. It’s also recommended to assess your expenses and the time you might need to find a new job – this will help you calculate precisely how much money you need to transition smoothly.

Determine What You Want to Negotiate

Your basic severance pay is the minimum; consider negotiating for a bonus, unpaid commissions, or stock options that are due. Don’t hesitate to ask for extended health insurance, life insurance, and other benefits. Calculate the cost of these benefits to understand their value. You can also request support (via an outplacement firm) to secure new employment faster.

Plan Your Approach

Timing is everything in negotiations. Choose a time when you can discuss directly with a decision-maker. It’s best to avoid times of high stress or business downturns. Decide whether you will negotiate in person, over the phone, or in writing. In-person or via a video call generally yields the best results as it’s more personal.

Be a Professional

Approach your severance talks as a business discussion. Regardless of how anxious or frustrated you are, keep all emotions in check. The only thing you need to focus on is the contributions you have made to the company. It’s wise to prepare what you want to say in advance. Start by expressing your appreciation for the opportunity to work there, followed by your request and rationale.

Of course, you must also be ready for your employer to push back against your reasonable demands. This is why you should consider hiring an employment lawyer to handle the negotiation process. Without legal representation, it’s easy for workers to fall into emotional traps. You might feel pressured to settle for a less favorable offer as quickly as possible because you are worried about losing your job.

It’s not uncommon for companies to use tactics that an average employee may not anticipate or know how to counter effectively. Most workers lack detailed knowledge of labor law, which puts them at a disadvantage. An attorney levels the playing field. They know your minimum acceptable offer and how to counteroffer to provide you with comparable value, even if the company does not meet your original terms.

👉Also Read: Severance Pay Delays: How Long Does It Take to Receive Severance Pay?

Reach Out to Our Experienced California Employment Lawyers Today

At Hershey Law, in our tirelessly fight against unlawful employment practices, we have recovered tens of millions of dollars in verdicts and settlements for our clients. If you would like a “Super Lawyer” – a merit earned by less than 2.5% of lawyers in California – to review your severance agreement and identify areas to improve the terms, call us at (310) 929-2190 or contact us online.