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What is a severance package?
A severance package, or severance agreement, is offered to employees when they are laid off or terminated by their employer. These package offers include essential benefits and payments that vary depending on the length and position the employee had with the previous company. The standard severance pay includes a week's salary for every year the employee has worked. An executive position would typically receive more.
Not to be confused with a final paycheck, the severance package can include retirement planning, unreimbursed business expenses, reimbursement for unused off time and an extension on health benefits. However, the compensation varies with different companies. Some may not offer it at all.
Employees are able to elect and continue their benefits including, dental, medical spending, and vision under COBRA (Consolidated Omnibus Budget Reconciliation Act). However, depending on the terms of unemployment, COBRA's coverage will only last for about 18–36 months.
Why do companies give severance packages?
Companies who offer severance packages to their departing employees think of it as a way to show their gratitude for the time spent working for them by giving laid off employees financial assistance for their transition after the unfortunate circumstances. However, other reasons why companies offer these packages are for legal reasons or to avoid negative publicity if it's after a massive downsizing.
What are the laws in CA about severance packages?
In the state of California, there is actually no law that requires employers to give a severance package after employee termination. The Department of Industrial Relations says, "employees should refer to their employer's policy with respect to severance pay." The outcome of the severance package relies on what the company offers, but employees do have the option to negotiate for better compensation.
California employees are also covered with unemployment insurance depending on their termination conditions. Under California law, employees who were laid off through and not at fault for their termination are eligible for insurance. But, if an employee was terminated on bad terms (misconduct or harmful behavior), the only thing an employer is legally obligated to give the employee is the final paycheck with the unused vacation and sick time reimbursement included.
Can I receive severance if I'm fired?
There comes a time where an employee might face termination due to poor performance or for something more severe. Let's say if you were to get fired and had to leave due to poor performance and not meeting the company's expectations, you actually have the choice of asking for unemployment benefits which will help you financially when looking for your next job. Keep in mind, it's still the company's choice of whether or not you receive any compensation.
In the state of California, terminated employees could be eligible for unemployment benefits, depending on these three factors:
- Your past earnings must meet certain minimum thresholds.
- You must not be at fault for termination, as defined by California law.
- You must be actively seeking employment.
Also keep in mind, employees that left their previous job due to:
- Reckless or harmful behavior
- Intentional carelessness, violation of duty, or inefficiency
- Quitting the position
Are not qualified for unemployment benefits or insurance in California. If employees were fired for not meeting expectations or low quality performance, then they can qualify.
What should I do if I'm offered one?
Research! Don't rush! Employers will give you some time to think over their offer.
If a company offers you a severance package for your departure, you should not jump on the offer once it's put on the table. Employees have the chance to think things over and strategize severance pay negotiations. In the end this will help you get the fairest compensation for your time spent unemployed.
Take this time to gather information and documentation that reflects your time spent working for them and any finances they owe to you. Pull up documents of your salary, benefits, unspent paid time off, bonuses, business expenses, and stock plans. Use this information to determine if their offer is a fair one.
Can I get help?
For those who are uncomfortable with negotiating their severance offer on their own, they can get assistance from an employment lawyer. Those in distress about negotiations, financial planning, and unemployment can work with an attorney who can gather information and help you review a severance package.
These trained professionals will make sure that laid off employees will get the compensation they deserve from their employer. Keep in mind, a severance package is offered by employers to help life stability until they find a new job and to reimburse any funds that were accumulated. It's a bold strategy to go the extra mile and hire a lawyer for negotiations. You will be able to get the most out of your financial compensation when you are no longer employed.