Severance payment

A severance package is pay and benefits employees receive when they leave employment at a company. In addition to their remaining regular pay, it may include some of the following:

Packages are most typically offered for employees who are laid off or retire. Severance pay was instituted to help protect the newly unemployed. Sometimes, they may be offered for those who either resign, regardless of the circumstances, or are fired. Policies for severance packages are often found in a company's employee handbook, and in many countries, they are subject to strict government regulation. Severance contracts often stipulate that employees will not sue the employer for wrongful dismissal or attempt to collect on unemployment benefits, and that if they do so, they must return the severance money.

Severance agreements are more than just a "thank you" payment from an employer. They could prevent an employee from working for a competitor and waive any right to pursue a legal claim against the former employer. Also, an employee may be giving up the right to seek unemployment compensation. An employment attorney may be contacted to assist in the evaluation and review of a severance agreement. The payments in some cases will continue only until the former employee has found another job.

In February 2010, a ruling in the Western District of Michigan held that severance pay is not subject to FICA taxes, but it was overturned by the Supreme Court in March 2014.

Employers are required to pay severance pay after an employee working in Puerto Rico is terminated. Employees are not permitted to waive this payment. Severance pay is not required if the employee was terminated with "just cause."

Just cause is satisfied in any of the following situations: the employee had a pattern of improper or disorderly conduct; the employee worked inefficiently, belatedly, negligently, poorly; the employee repeatedly violated the employer's reasonable and written rules; the employer had a full, temporary, or partial closing of operations; the employer had technological or reorganization changes, changes in the nature of the product made, and changes in services rendered; or the employer reduced the number of employees because of an actual or expected decrease in production, sales, or profits.

...
Wikipedia