What is a Severance Package and When Do You Need One?

stlegalgroup • July 16, 2023

What Are Severance Agreements?

Many employers offer severance packages to prospective employees, laying out the terms and policies for how matters will play out if and when a worker departs a company. While many skilled workers know the importance of negotiating salary and other benefits for their jobs, fewer take the time to negotiate better terms in their severance agreements. This is understandable as the employee is just joining the company and wants to think about something other than the end of their employment already. They may even fear that doing so may send the wrong message to their new employers.

But a well-laid-out severance package can be like ensuring a proper net above the ground in case the worst happens. A good severance agreement can be the deciding factor in whether or not a newly unemployed worker is able to survive until their next job comes along.

While most employers offer a severance agreement to all new employees, the terms of the agreement may only be satisfactory to some. In such cases, the new employees may consult an employment lawyer to help them negotiate better terms.

Severance packages typically include one to three months of continued insurance coverage and potentially a certain amount of salary. The severance package will go into effect once the employee’s position with the company is terminated.

Are Severance Agreements Legally Mandatory?

Severance packages are not mandatory on a federal level from the Fair Labor Standards Act (FLSA). Nor are they mandated by Illinois or its cities.

The decision of whether or not to include a severance agreement is a discussion left to the employer and their soon-to-be ex-employee.

You may be required to pay severance in certain limited circumstances. For example, if you led an employee to believe that you would offer a severance package, you may be held to your promises. This is especially true if there is evidence such as a written contract or other business standard in place where an employee should rightfully believe that they will receive severance pay.

What Are the Benefits of Severance Packages?

Severance packages offer several benefits to ex-employees after their jobs are terminated.

Benefits may include the following:

Accrued vacation time, sick days, and holiday pay may be paid off after employment ends
Assistance for the job hunt may be offered so that the ex-employee quickly lands on their feet elsewhere
Company assets, such as a company computer, phone, or even car, may be transferred to the former employee in some circumstances
Health insurance coverage may be extended for a certain period of time while the ex-employee searches for new employment opportunities. Dental insurance, vision benefits, and life insurance options may also be offered. If the employer does not provide healthcare, the ex-employee may look to the government program known as the Consolidated Omnibus Budget Reconciliation Act (COBRA), which helps employees maintain their healthcare coverage following the loss of a job
Salary may continue for a week or several months. The length of time may depend upon the employee’s role with the company and how long they were employed there
Uncontested employment benefits may be a possibility for a recently fired employee. The former employer may have the opportunity to contest an unemployment claim, however

For assistance negotiating the benefits you wish to include in the severance package, consult an experienced employment attorney in your area today.

Should Employers Provide Severance Pay to Employees?

In Illinois, employers are not required to offer severance pay to terminated employees. However, there may be several instances where offering a fair severance package could benefit the company and its employees.

Advantages of providing severance packages to employees may include:

Builds goodwill among the staff and shareholders.
Diminishes chances of litigation and allows underperforming employees to exit gracefully.
Further decreases the possibility of a lawsuit by asking terminated employees to sign a release in a severance agreement.

Though a business may decide that not every employee deserves severance, it is common for companies to offer severance packages to long-term employees heading out the door to offer thanks for years of service.

Can a Recently Fired Employee Sue for a Severance Package?

If severance pay was guaranteed to employees either at the time of their hiring or during their many years of service, then they are able to sue their former employers if no severance package is offered after termination. In order to bring a successful lawsuit to court, the plaintiff must have sufficient evidence to support their claims. The most substantial proof is a written contract plainly stating that the employer would provide severance pay to former employees upon the end of their employment with the company.