Termination, Earned Wages, and Severance Pay: What You Need to Know

Losing one’s job can cause tremendous stress on yourself and your family. From a financial standpoint, joblessness can result in an immediate strain on you and your family. From a purely medical standpoint, the stress of being fired begins to mount and can result in deep depression.

Adding insult to injury, many employers will tend to shortchange employees upon firing. This can often take the form of not timely paying their prior-earned wages or going back on severance agreements. That’s why it is so important to be aware of your rights upon termination. It is always best to get an employment attorney NYC free consultation to make sure you collect all your unpaid earned wages as well as possible severance pay.

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What are Earned Wages?

“Earned wages” is essentially legal terminology that means wages that were earned but were never actually paid. When an employee resigns or is terminated, employers owe the former employee all wages for any work that was performed as an employee. You are entitled to receive your final paycheck, compensating you for all of your hours worked, commissions and/or guaranteed bonuses, on the next scheduled payday after your employment ends.

What is Severance Pay?

Severance pay, also called separation pay, on the other hand, arises from a contractual agreement (severance agreement) that you make with your employer upon your firing/resignation. Under the terms of that contract, your employer agrees to provide you with benefits or payment in exchange for you agreeing to waive all legal claims that you might have against your employer.

Your former employer may offer you severance, but it is not required to do so. Once you sign the severance agreement, you will be bound so we recommend contacting an experienced employment law attorney before signing any agreements.

What is the difference between Earned Wages and Severance Pay?

The key difference between earned wages and severance pay is the source of the obligation: earned wages are required to be paid because they are wages (it’s the law), whereas severance pay is only required to be paid when you and your employer agree on the terms in a severance agreement. Both concepts involve legal obligations that the employer owes to you, but the obligations are slightly different.

You get your earned wages no matter what, and the amount that you are owed is dictated by the agreed upon rate of pay and the amount of time you have worked since being paid. Severance pay is dictated by the terms of the signed severance agreement.

What if I Don’t Get My Final Paycheck? How am I Protected by the Law?

An employee’s right to earned wages does not come from an employment contract or the circumstances of one’s employment; rather, it comes directly from the letter of the law. Under the federal Fair Labor Standards Act and the New York State Labor Law, employers have a legal obligation to pay employees for the work that they have performed. The right to payment is unquestionable and is unaffected by the termination of an employee. A terminated employee has a right to any wages that he or she had earned prior to being fired. In New York, under N.Y. Labor Law § 191, your employer must pay you your earned wages on the next scheduled payday after you have quit or been fired. Often, employers either do not know that this is the case or they choose not to pay their employees for their work out of spite or anger (often resulting from the circumstances of the termination).

A terminated employee, therefore, has a legal right to seek any earned wages from an employer. In some cases, writing a strongly-worded letter to your former employer will be enough to convince them to pay up. However, in many cases, former employees may have to go to court to recover wages that they are owed.

If you have not received your paycheck in a timely manner, you should contact an unpaid wages lawyer to ensure that your rights are protected. If an employer fails to pay a departing employee within the legal time limits, the employer may have to pay additional penalties, interest, and any attorneys’ fees and legal costs the employee spends in forcing the employer to comply.

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You have 6 years to collect unpaid wages from your employer under state law, but only two years for violations of federal law (or three years if the employer willfully violated the law). However, it’s best to file your claim or consult with an unpaid wages attorney as soon as possible.

Who is Entitled to Severance Pay?

You are only entitled to severance pay if you sign an agreement in which your employer agrees to pay you severance. In some cases, this payment is clearly defined. In others, it depends on certain factors such as the length of employment or the circumstances surrounding the termination. It is important to consult with NYC employment lawyers to determine exactly what your employment agreement may entitle you to upon termination. Here are some reasons you may be entitled to severance pay:

• If the specific terms of a written contract state that your employer will provide severance pay
• The employee handbook notates that the employer’s policy is to provide severance pay
• There is a history of your employer’s offer of severance pay to other employees in the same position
• The employer has committed to an oral promise to provide severance pay upon termination

If you’re asking yourself, “is severance pay mandatory?” review your official employment documents listed in the above bullets, and be sure to contact an employment attorney if you still have questions surrounding severance pay and terminated employees.

Do Companies Have to Pay Severance?

So, do companies have to provide severance pay? The answer is, it depends. The WARN Act (Worker Adjustment and Retraining Notification) gives you some protection. This act is directed by the U.S. Department of Labor Employment and Training Administration (DOLETA). In New York, the WARN Act states that employers with 50 full-time employees, planning a closure or mass layoff that will impact 25 or more employees who represent at least 33 percent of all workers at the work site; or at least 250 full-time employees must provide a 90-day notice to employees, any associated bargaining representative and specific government entities. This is to ensure that workers have the turnaround time they need to seek new employment opportunities or any necessary training/retraining they may need to acquire another job. 

As of November 2020, New York has amended its WARN Act notification requirements to include additional government entities. Companies must now inform all of the following government entities:

• The New York Department of Labor
• Local Workforce Investment Board within the district that will be impacted by the changes
• Chief elected official of local government and the school district(s) that may be affected by the changes
• The locality that provides emergency services to the site of employment experiencing the mass layoff, relocation or employment loss

The legal requirements of the WARN Act do not include employees who have worked fewer than six of the last twelve months or individuals who work fewer than 20 hours per week.

Companies that fail to provide this notice to the appropriate parties may be required to pay back wages and employee benefits, as well as be responsible for civil penalties.

In addition to this, there are three more situations where an employer may decide to provide severance to let-go employees. If a person is fired without notice, s/he may receive an offer of severance pay in exchange for contractually agreeing not to take legal action for discrimination, unpaid wages or wrongful termination. Another reason an employer may offer severance is in exchange for a signed non-disparagement clause. Lastly, if there has been restructuring, budget cuts or elimination of positions, severance may be paid if this is the sole reason for the dismissal, and it is not due to poor performance or another reason that would be the fault of the employee. These reasons are highly discretionary and depend on the specific situation. If you’re unsure, contact a employment attorney in New York today.

Is Severance Pay Required by Law?

When an individual finds themselves suddenly unemployed, questions arise about what severance pay laws exist. While there is no requirement of severance under the Fair Labor Standards Act or any federal law, some employees are granted severance depending on the period of time they were employed by the employer as well as the specific employer policies. Generally, employers may offer the terminated employee one to two week’s of wages for every year worked at the company. 

Depending on the state you’re in, there may be some employment laws around severance within the state’s WARN laws. For instance, Maine and New Jersey both have required severance pay within the states’ WARN laws. However New York law does not require employers to pay severance. If you are inquiring about New York severance laws, it’s advisable to talk to an attorney about your specific situation. 

What is a Severance Agreement?

This is a contract between you and your employer. Under the terms of that contract, your employer agrees to provide you with benefits or payment (severance pay) in exchange for you agreeing to waive all legal claims that you might have against your employer, including waiving your right to bring a lawsuit against your employer. Employees, of course, are not required to agree to any of these terms but the employee will not receive their severance pay unless they sign the agreement. Although a severance agreement may seem like a simple document, we recommend calling an employment lawyer in New York before signing any agreements to ensure that agreement does not have any loopholes allowing your employer to cut the payment.

How Does Severance Pay Work?

While negotiating the severance amount with your employer, some factors that may come into play when your employer is deciding how to calculate severance pay and what to offer you are:

• how long you’ve been with the company,
• your position and rank,
• size of the company,
• the reason your employment ended;
• whether the employer believes that you have actionable claims against them.
  

While typical severance pay is usually monetary – delivered in either one lump sum or multiple installments – it’s not the only form a payment can take. For example, you may ask your company to foot your health insurance bill for a couple of months, or you may request to keep your laptop computer after it’s been wiped clean of company data. You could also negotiate a check for any unused vacation pay and floating holidays. You could also receive stock options or company equity, in which case the severance agreement will usually explain the value and payment terms of any equity interest owned by the employee.

Among other post-termination employee benefits often offered by companies is outplacement counseling. This can be provided in the form of résumé assistance, job placements, and career counseling. Outplacement counseling is designed to help terminated employees prepare themselves for a new job or a new career, to lend assistance in providing outside resources to provide training, and to generally help employees cope with leaving the company. Larger organizations may hire outplacement services to assist employees, whereas smaller organizations may hire a single counselor or use existing resources to assist employees.

What is Contained in a Typical Severance Package? What are Examples of Common Provisions?

1. Severance Payment

Almost every severance package contains a promise to pay money. For example, your severance package might say that you will receive your salary for 3 months after your last day in the office. Be sure to check your agreement so you understand how much money is being paid to you. Remember, you can always try to negotiate for more money.

2. General Release and Waiver of Claims

This is where you agree to waive all legal claims that you might have against your employer, including waiving your right to bring a lawsuit against your employer. Note that there is a separate release for employees over the age of 40, who are protected by a special age discrimination law known as the Older Workers Benefit Protection Act (OWBPA). OWBPA is part of the Age Discrimination in Employment Act (ADEA).

3. Non-disparagement

It is common for severance agreements to contain a nondisparagement clause where both parties agree not to disparage or make negative statements about the other party, regardless of whether the statement is true.

4. Confidentiality

This is where both parties agree to keep the contents, terms, and conditions of the severance agreement confidential and not to disclose them to anyone.

5. No Admission of Liability

Your employer will most likely want to include a paragraph in which your employer makes clear that the severance agreement is not and shall not be construed to be an admission or evidence of any wrongdoing or liability on the part of your employer.

6. Governing Law/Choice of Law

This provision will state that the severance agreement shall be governed by and construed in accordance with the laws of a specific state.

7. Forum Selection Clause

This clause will state that all disputes relating to the severance agreement must be litigated in a particular court in a jurisdiction;

8. Arbitration Clause

This clause provides that disputes relating to the severance agreement must be resolved through arbitration and cannot be litigated in the courts.

How Much Severance Pay Do I Get?

If your employer decides to offer a severance, your employer will usually calculate severance pay and determine the amount of severance they will offer by taking into account the number of years you’ve been with the company, your position and rank, the size of the company, the reason your employment ended, and whether the employer believes that you have actionable claims against them. Employers usually want to reward long-term employees who are losing their job through no fault of their own. 

In addition to severance pay, you also may be eligible for unemployment benefits when your severance payments end. It’s important to be aware of a 2014 New York law amendment that prohibits people from collecting unemployment benefits if they’re receiving severance payments that exceed the state’s maximum weekly unemployment benefits. You may not be able to receive unemployment benefits indefinitely, depending on the specifics of the situation and timing of your payouts. This may not be a reason to reject your severance package offer, but it is something to be aware of and consider.

If you are not offered any severance pay and you are aware that your employer customarily provides severance pay to similarly situated employees — similar job title, position, tenure, salary and so on — then you should inquire with your employer as to why you are not being offered any severance package.

How to Negotiate a Severance Agreement?

Once an employer has made an offer of severance, the natural question is how to get more severance pay than what was offered. There are several different strategies you should consider in approaching such a negotiation. It is important to understand that it is in the employer’s interest to pay you as little as possible in exchange for your waiver and release of all claims, so it is highly recommended to delegate all negotiations to a qualified employment law attorney who will protect your rights.

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Regardless of when you negotiate your severance, the employee will want to consider numerous issues in connection with severance. These issues include:

• whether the company will agree to give a favorable reference;
• whether the company will agree not to disparage the employee;
• whether the company will pay for the employee’s medical insurance premiums after termination, including any premiums payable under COBRA;
• whether the company will provide outplacement benefits or, if the employee does not have a need for outplacement services, the cash value of such benefits;
• whether the agreement includes a forum selection clause or choice of law provision;
• whether the agreement contains an arbitration clause.

FAQ:

How to Avoid Being Taken Advantage of?

Before signing any severance agreement, contact an employment attorney at the Law Office of Yuriy Moshes, P.C. for a free consultation.

Unfortunately, many employers try to take advantage of the people they are letting go by having their employees sign away all of their rights while neglecting to provide the employee with his earned wages in the hopes that the employee doesn’t notice. When preparing to leave your place of employment, be especially cognizant of the wages you are owed for your last pay period, considering any earned but unpaid overtime, commissions, or bonuses.

Make sure to check if your employer offers severance and pay special attention to the terms of severance agreement. If you do find that your employer is refusing to give you all of your unpaid earned wages or seems to be trying to coerce you into signing an unfair severance agreement, contact an unpaid wages attorney for a free consultation.

Have you been paid all of your earned wages? Do you believe that you have legal claims against your former employer? Has your former employer offered you any severance or presented you with a severance agreement to sign? Has your former employer breached a severance agreement that you already signed?

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