Company closed...severance???

We are closing down one of our companies after 7 years of operation. Two of the 15 employees have been with the company almost the entire time. What type of severance package would you recommend for the most senior employees? How many months of pay is appropriate?



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  • I suggest one weeks pay for each year of seniority. Be sure to check with your labor/employment attorney since you indicate giving the severance payment to your most senior employees only.

  • From an ERISA perspective, you do not want the total amount of an employee's
    severance to exceed twice the employee's compensation for the previous year or
    the payments to extend beyond 24 months from the date of termination. This will
    keep you from establishing a "pension plan" with all the accompanying ERISA
    requirements. Other than that, you may want to ask others in your industry as
    to what is a reasonable rate of severance given an employee's job category and
    length of service.

  • I worked for an afternoon newspaper that closed and our severance package was $1,000 for every year worked. It seemed to please everyone.

  • Followup...If we offer a position to the "senior" people in a subsidiary of the parent company, should we offer severance as an option, as well? Is offering severance mandatory when a company shuts it's doors?

  • As a general rule the offering of severance is not mandatory. If an employer has established a severance pay policy it could be bound by that policy unless it changed it prior to the severance event.

  • Severance is generally not mandatory, but you need to make sure that you comply with the WARN Act (if your company is large enough to fall under it), which requires a specified notice period to the employees. You also may want to consider making a payment as "in lieu of notice" rather than severance, because it may effect your liability for unemployment coverage (in Texas severance does not effect unemployment, but a payment in leiu of notice does). Hope this helps. Good luck.

  • Follow-up. You may want to require employees to sign a release in order to receive the severance payment. The document would contain language releasing the employer from all legal claims that may arise as a result of their employment.

  • If you have employees over 40 sign a release, you have to comply with the Older Worker's Benefit Protection act to get a release of age claims (only applies if you are covered by Title VII and the ADEA based on number of employees). The requirements can be onerous. The EEOC has recently (12/11) published some new guidance on it, which is available at the EEOc website (

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