Severance pay is a package an employer provides to an employee upon separation, typically including salary continuation, health benefits, and sometimes professional outplacement services. When separation is due to performance issues, the expectation of receiving this financial cushion becomes uncertain. While severance is common, no blanket federal or state law requires an employer to provide this payment, especially following a firing for performance. Understanding the legal landscape and company discretion is important for determining eligibility.
The Legal Baseline: Severance is Not Mandatory
The legal standard governing employment relationships across most of the United States is at-will employment. This doctrine permits an employer to terminate an employee at any time, for almost any reason that does not violate anti-discrimination laws, including documented subpar performance. Because of this framework, employers are under no general legal obligation to provide severance pay; it is considered a voluntary benefit or a contractual obligation rather than an inherent legal entitlement. An employer can fire someone for failing a performance improvement plan and legally owe them nothing more than their final wages and accrued vacation time. Federal legislation, such as the Worker Adjustment and Retraining Notification Act (WARN Act), addresses large-scale layoffs but does not mandate severance payments, reinforcing that severance remains discretionary.
Defining Termination for Performance
Termination for performance is characterized by a failure to meet the measurable objectives or standards outlined in the employee’s job description or performance reviews. This process usually involves a documented history, often starting with formal warnings and the implementation of a performance improvement plan. The employer initiates separation because the employee was unable to successfully execute the required duties after being given an opportunity for correction. This type of separation is distinct from termination due to gross misconduct, such as theft or workplace violence. Misconduct typically results in immediate termination and almost always disqualifies the employee from receiving severance, even if a general policy exists.
Contractual and Policy Exceptions
While the legal baseline does not mandate severance, binding agreements can create an entitlement even when separation is due to poor performance. Employees in specialized or executive roles often have individual employment contracts that explicitly outline separation terms. These documents typically distinguish between termination for “cause” (misconduct) and termination “without cause” (performance failure), stipulating a severance formula for the latter. Collective bargaining agreements negotiated by a union also frequently mandate severance pay based on seniority and the reason for dismissal. Furthermore, if the employer has a published, non-discretionary policy stating that all involuntarily terminated employees receive a severance package, the company is generally obligated to follow that policy.
Key Factors Influencing Severance Decisions
When an employee does not have a contract or policy guaranteeing payment, the decision to offer severance becomes a strategic business choice for the employer. Companies often extend a package to long-term employees as a gesture of goodwill, recognizing their seniority and tenure regardless of the performance issue. The employee’s specific role and level also significantly impact the decision; higher-level individuals may receive a package to ensure a smooth transition and protect proprietary information or trade secrets. The most significant driver for offering severance is risk mitigation. By providing a package, the employer almost always requires the employee to sign a comprehensive release agreement, waiving their right to sue the company for wrongful termination or other claims.
Strategies for Negotiating Severance
If no policy or contract mandates payment, the separated employee still has an opportunity to negotiate a package. One effective strategy involves offering the employer a clean and quiet exit in exchange for a small severance amount. This means proposing to sign a non-disparagement agreement and reaffirming confidentiality obligations, reducing the company’s exposure to negative public relations. The employee should frame the request by highlighting historical contributions or significant tenure, shifting the conversation from the recent performance failure to their overall value. When cash is difficult to secure, the focus can shift to requesting non-cash benefits, such as a subsidy to cover continued health insurance through COBRA or professional outplacement services.
Final Considerations and Next Steps
Following a performance-based termination, an immediate step is to apply for unemployment benefits. Being fired for poor performance generally does not disqualify an individual from receiving unemployment, provided the issue did not constitute willful misconduct or a deliberate violation of company rules. The separated employee must also carefully review all final termination paperwork, paying attention to clauses concerning non-compete agreements, intellectual property rights, and the terms of any legal release offered.