Can Severance Pay Be Included in Collective Bargaining Agreements?

Severance Pay

Unless mandated by law or a company policy, severance pay is a voluntary benefit that companies offer to ease the transition for laid off workers and help them find new jobs. Depending on the size of the company and its policies, it can be very generous or relatively minimal. The size and contents of severance packages are often part of negotiations between employers and unions, particularly when layoffs affect large numbers of employees.

Severance package contents can include a lump sum of money or the continuation of insurance coverage and other benefits, such as access to the company gym or a corporate credit card. The amount of severance pay can be based on the length of employment (for example, one month of salary for every year of work), whether the person was a high performer or in a senior position and other factors.

In addition to a financial arrangement, the severance agreement may also include a non-disparagement clause, which prevents the former employee from bad-mouthing the company or its representatives. Depending on the size of the company, it could also contain a non-solicitation or non-disclosure clause that prohibits the former worker from competing with or working for the employer or its competitors. The severance pay may also include a release of claims. These clauses can be very broad and limit the former employee’s ability to sue for a variety of reasons, including discrimination or harassment.

Can Severance Pay Be Included in Collective Bargaining Agreements?

As a result, it is important for the former employee to read and understand the entire severance agreement carefully before signing it. The severance agreement will usually include a statement that the former employee has 21 days to consider it and seven days to revoke a signed copy. For older workers, the Older Workers Benefit Protection Act requires a longer period to consider the severance agreement (45 days if the person is being laid off as part of a reduction in force).

Many people who are being laid off are enrolled in group health insurance through their employers, and if severance pay includes the cost of continuing coverage, it can be helpful to the departing employee. A severance agreement should also account for the payout of any money that is owed independent of severance pay Toronto, such as unused vacation or sick time, commissions, bonuses and unreimbursed business expenses. The severance agreement should address the handling of pension, profit sharing and 401(k) plans, stock options and loan repayments.

Unless a company is being acquired or facing major economic difficulties, it should be willing to negotiate the terms of the severance agreement with its employees. The company’s willingness to do so demonstrates its concern for its workforce during challenging times and can make it a more attractive employer in the future.

A company should also be flexible in negotiating the terms of the severance agreement if it is being sold or faces a major economic downturn. In addition to severance pay, the company should consider continuing health care and other perks that are often offered as incentives for employees in good standing.