DIFFERENCES BETWEEN U.S. AND EUROPEAN LABOR LAWS: Part 2 Severance Payments

If you are an American seeking to do business in Europe, or vice versa, it is useful to have an overview of the cultural and legal differences between the two continents to understand how these impact the respective work cultures.  As each state in the U.S. and each country in Europe has its own quirks, it would be impossible to cover all variables.  This series is intended to give a basic overview of some common and general points to bear in mind.  

So over the next few months, we’ll be addressing quickly the most common questions we entertain.  We’re also hoping to start a conversation – if there’s a topic you’d like us to cover, please let us know.  This is Part 2 of our series.  To view Part 1 (on minimum wage), click here .

Severance Payments

Europe.  Although EU-member states are required to comply with certain labor laws originating from the EU (unless the member state has opted out of the particular law), there is no EU or Europe-wide uniform law governing severance payments.  England grants severance pay where minimum periods of employment and other criteria are met.  France has complex employment laws requiring minimum redundancy payments to those who qualify and obligations regarding the procedure to follow.  Although Germany has no statutory pay upon termination, whether severance should be paid depends on the reasons for termination.  Many employers in Germany will pay severance, even if it is not legally required, in order to avoid possible litigation.  Spain and Italy require severance pay depending on the circumstances of termination.  The Netherlands likewise has complex procedures for termination of employees.  Broadly speaking, labor laws in many European countries are extremely complex and protective of employees, often imposing required procedures for termination and short time periods within which to take action.  It is inadvisable to attempt to navigate European labor laws without legal counsel.

 

United States.  It can come as a shock to Europeans that American employees, even those with decades of service, have no statutory right to severance payment.  If the employee was terminated, he or she can usually claim unemployment benefit if certain criteria are met.  However, severance payment is available only if it is agreed between the employee and employer. Sometimes this occurs through union agreements.  In non-unionized industries, severance is owed if the employer has a policy of paying or the parties come to some agreement about severance pay in a particular case. Some employers do make severance payments to good employees as a means of thanking them, or to bad employees as settlement of a potential claim. But the take-away is that there is no automatic right to severance pay in the absence of an agreement (or a provable practice of paying).  Coupled with the at-will doctrine that governs the majority of U.S. employment situations, it is highly advisable for employees to attempt to save a couple of months of salary if at all possible to tide them over in the event of termination.  For U.S. employers, even if no legal obligation to pay exists, it is wise to weigh up the pros and cons of paying nonetheless depending on the circumstances of the termination, the risks of litigation and public relations impact of not paying.

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