When can you get a severance package?
Severance package or termination agreement is a term used for an agreement with the employer in connection with the termination of the employment. It is common to agree on a severance package in a number of cases. For example, there may be cases where strategic choices have made it desirable for the employer to restructure the business. Or where a wrongful termination is made.
Rights severance package
There is no statutory right to a severance package. However, “arbeidsmiljøloven” has its own paragraphs on compensation, for example in case of wrongful termination. Such compensation can therefore be part of a severance package that the parties agree on. Especially in cases where the employer has proceeded a bit too quickly with the termination, a severance package may be relevant to avoid a legal dispute for the employer. The purpose of a severance package is usually just to avoid a dispute. The employer therefore often sees the benefit of offering a severance package, just to close the case.
Severance package size
In a severance package, the parties may for example agree that the employee:
- is exempted from the obligation to work during the termination period
- receives severance pay of x number of months
- can keep his mobile phone and PC
- is offered coverage of outplacement services to get a new job
- gets grants for education
- gets coverage of costs for a lawyer
The points above are intended as examples of what can be agreed between parties, and are not an exhaustive list. How much an employee manages to achieve, typically depends on the specific situation. The size of the company can also make an impact on how much it is financially possible to offer in a severance package. Where there is a wrongful termination or other matters worthy of criticism on the part of the employer, it is usually most to be obtained. From experience, we have seen examples of up to 24 months’ severance pay.
Severance agreement and holiday pay
In cases where severance pay is agreed, the question of holiday pay arises. In the case of an agreement on severance pay that is paid monthly in the ordinary way, the employee is entitled to holiday pay of the paid amount. If the parties agree on a one-off payment upon resignation, the employers usually try not to calculate holiday pay on this amount. However, this is a negotiable issue that can be discussed.
Severance package and tax
Payments made in a severance agreement are, as a general rule, taxable according to “skatteloven § 5-1”. It may therefore be appropriate to consider payment of severance pay over the turn of the year instead of a one-off payment, if the termination of employment occurs in the 4th quarter of the year.
Severance package negotiation
We regularly assist both employers and employees with the negotiation of severance packages. In such negotiations, it is useful to get the help of a lawyer who has knowledge of what the usual size of severance packages is on the market. Of course, it depends on several factors such as the length of the employment, the size of the company, the employee’s seniority and age, etc.
We offer up to half an hour of free guidance in connection with negotiations of severance package. Get in touch on:
Phone: +47 23 68 85 58.
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