A severance agreement protects an employee after job loss. They have a contract with their employer that allows them to maintain critical benefits and receive pay. Professionals often depend on their severance packages as they seek new positions.
Those in well-compensated roles may have significant downtime in between positions. Usually, if employees have a contract extending them the right to severance pay, employers have an obligation to uphold that agreement.
When can businesses justify the decision to deny an employee their severance package?
After a termination for cause
The details of a severance agreement largely dictate what obligations the employer actually has. Frequently, severance agreements include provisions limiting or outright eliminating severance eligibility if the company terminates the worker for cause. Poor performance or repeated disciplinary issues can justify a company’s decision to terminate a worker without any severance.
During business bankruptcy
Companies often have to engage in aggressive restructuring as part of business bankruptcy proceedings. In such scenarios, the company may eliminate multiple positions simultaneously. Workers let go during bankruptcy-related restructuring technically still have a right to receive contractual severance pay.
However, they have to pursue it as an unsecured creditor in the bankruptcy courts. That process is often very complex, and lower-priority creditors, such as individual employees, often do not receive much, if anything, of the amount technically owed to them.
In most other scenarios, companies have to uphold their severance agreements. Negotiating appropriate severance package terms can help protect professionals from the financial hardship of sudden job loss. Workers who lose their jobs may need help holding their employers accountable, just like those accepting new jobs may need support as they negotiate ironclad severance agreements, and that’s okay.