DEAR JOYCE: My husband is a mid-level manager in sports gear, and our family's financial status isn't all that comfortable. If a boom in terminations occurs, is there a law that requires employers to provide severance pay? -- H.G.R.
No. Other than exceptions for contractual obligations, severance pay is a gift. But, for several reasons, smart employers accept paying severance benefits as a cost of cutting costs. Survival of the company is one of the key reasons.
PLUNGING PRODUCTIVITY. Research finds that a company's layoff survivors take note if departing coworkers were mistreated -- realizing they, too, may someday be looking for an exit package -- and become demoralized. Survivors also report resentfulness over the extra work they must shoulder and allow their productivity to slump.
Specifically, a majority of surviving workers say the service customers receive has declined, and they see more errors and mistakes being made. (Visit ere.net; search for "Guilt, Anger Cuts Productivity Says Layoff Survivors" by John Zappe.)
LEGAL PROTECTION. Companies award severance in return for a quid pro quo. To collect the cash and benefits in a parting package, the dismissed worker must waive all rights to sue the company. Mass layoffs are especially worrisome from a legal perspective, because the people let go tend to be higher-paid workers who, unsurprisingly, often are older and may raise age-discrimination challenges.
Litigation avoidance used to be the rationale offered by terminated employees and their lawyers to negotiate an improved severance deal. Even so, BusinessWeek (Nov. 3, 2008) reports that "Employees' ability to improve a severance offer has declined as the economy has tightened."
In fact, the magazine quotes a San Francisco attorney as saying he's seen an increase in companies scrutinizing years of expense reports and checking whether a terminated executive visited inappropriate Web sites, doing so to find excuses to deny severance.
FUTURE RECRUITMENT. Still another reason smart companies not contemplating Chapter 7 come across with decent severance awards is their executives understand the long-term consequences sparked by roughshod treatment of employees. Corporate staffing consultant Gerry Crispin (careerXroads.com) explains:
"Companies in this economy are letting their employees go with little notice. Within hours of the decision, axed staffers are told to clean out their desks and are escorted off the premises. The last straw: They're getting no outplacement and minimal severance."