Severance pay is an important financial entitlement that may arise when an employment relationship ends in certain legally recognised circumstances. Long service by itself, however, is not enough.
1. The one-year qualifying service requirement
One of the basic requirements is at least one year of service with the same employer. Transfers of the workplace, changes in the employer or service at different workplaces connected to the same employer may require a separate assessment of how service is aggregated.
2. Which termination scenarios may give rise to severance pay?
Entitlement depends on who terminates the employment contract and on the legal reason for termination.
Termination by the employer
Where the employer terminates the contract for a reason other than conduct falling within the statutory category of acts contrary to morality and good faith, severance pay may become payable. The true nature of the termination is assessed from the circumstances as a whole, not merely from the wording of the termination notice.
Termination by the employee for just cause
Where wages are not paid, working conditions are seriously breached or another statutory just cause exists, termination by the employee may also result in entitlement to severance pay.
Retirement and other statutory situations
Retirement, military service, death and certain other termination grounds expressly recognised by law may also have consequences for severance pay. Relevant dates and supporting documents should be checked carefully.
3. How is severance pay calculated?
As a general rule, thirty days' wage is taken into account for each full year of qualifying service, with additional periods calculated proportionately. The calculation may include not only the basic wage but also certain regular and measurable benefits.
- Regular meal or transport benefits
- Recurring bonuses and premiums
- Other regular benefits measurable in money
The statutory severance pay ceiling applicable for the relevant period must also be considered. A simple multiplication of the final gross salary therefore does not always produce the correct figure.
4. Which documents matter in a dispute?
In employment disputes, the actual working arrangement can be as important as written documents. Records commonly relevant to severance pay include:
- Employment contract and annexes
- Social security service records
- Payroll and bank records
- Termination or resignation letter
- Notices and correspondence
- Records of bonuses, meals, transport and other benefits
5. Mediation and court proceedings
For many employment receivables, mandatory mediation must be completed before a court claim can be filed. If no settlement is reached and the legal conditions are satisfied, proceedings may then be brought before the labour court.
Limitation periods must also be taken into account. It is therefore important not to leave the matter unresolved for an extended period after termination.
6. A short severance-pay checklist
- Does total service exceed one year?
- Who terminated the employment contract?
- What was the real reason for termination or departure?
- Can that reason be supported by documents?
- What were the final wage and recurring benefits?
- Have mediation and limitation periods been considered?
Related practice area: Employment Law.
Severance pay depends on the full termination picture.
The reason for termination, service period and wage components should be assessed together when determining entitlement and amount.
Contact →This article is provided for general information only and does not constitute legal advice for a specific employment matter. Each case must be assessed in light of its termination ground, evidence and working conditions.