HR Management & Compliance

Is Severance Pay Required?

A subscriber to CEA Online recently wrote us with the following question:

A member of our senior management staff is leaving. She’s given us one month’s notice, but we’d actually prefer that she stop working immediately. Do we have to pay her one month’s severance, as that was the amount of written notice she gave us, or can we pay her just two weeks’ severance?

Our answer:

There is no law, California or federal, that requires employers to offer any severance pay at all to departing employees. While “two weeks severance” was at one time customary, it has not been so for some time. There is no legal relationship between the amount of notice that an employee gives, and any state or federal obligation of the employer to offer severance pay, as no such obligation exists. 

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However, if the employer and the employee have agreed to a severance package in a written or oral contract, then the employer may be obligated to pay severance or risk getting hit with a breach of contract claim. Similarly, if the employer maintains a policy that provides severance pay to some types of employees, or all employees, then it is in the employer’s best interest not to apply that policy in a discriminatory or arbitrary manner.

The purpose of severance pay is to offer a departing employee “consideration” (money) in exchange for signing a release of any claims the employee may have, or may later discover having, against the employer. (We offer a sample basic severance agreement here: It is a protective measure that many employers choose to take, although it is not legally required.

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Additionally, there is no legal prohibition on an employer moving up an employee’s last day of work once an employee has given notice of his or her intent to resign. However, you must always pay any departing employee for all days and hours worked up to the day and time that the employee actually ceases all work.

If the employee has resigned, all owed compensation (including accrued but unpaid vacation or PTO) must be paid within 72 hours of the employee’s last day of work.

Tomorrow, we’ll share another question from the mailbag. We’ll also introduce a great resource, newly updated for 2011, that can help you find the answers to tricky questions like this right from the comfort of your office.