Most people we meet with in our practice have, unfortunately, been discharged from their job. Those who are “lucky” have been offered some sort of severance from their former employer. The rest have been let go with nothing more than a final paycheck and some unused PTO. This frequently leads to the question, is severance pay required under Iowa law? Regrettably, the answer is no.
Iowa is an at-will employment state. That means employees can be discharged for any (non-illegal) reason (more about that below). It also means that, except for the payments required under Iowa’s Wage Payment Collection Law or a contract between the employer and employee, employers do not have to offer any severance to discharged employees. This can be a disappointing reality.
On the other hand, when an employee is offered a severance, it sometimes makes her feel a little better to learn that her (now former) employer offered a severance not because the employer had to, but because it wanted to. I’ve spoken with quite a few people who were offered a severance that initially seemed meager and borderline offensive. But learning that an employer did not have to offer any severance can make it a little easier for employees to more carefully consider whether to accept the severance. Those employees are often able to see the severance offer as recognition of years of service rather than a slap-in-the-face.
Let me be clear, severance offers are rarely just oozing with goodwill. Most of the time, an employer offers a severance because it wants the employee to sign a full release of any potential claims. When an employee signs a full release, the employee is generally prohibited from bringing any future lawsuit against his employer related to his employment or discharge. An employer may offer a severance and request a release because it thinks an employee has potential claims and wants to handle those claims up front. Or, an employer may also offer a severance and request a release not because it thinks an employee has potential claims, but because the employer just doesn’t want to take any chances and wants to ensure it will not be sued.
If an employee does have potential claims, the employee might use those potential claims as leverage to negotiate a better severance. Employers are occasionally willing to “sweeten the deal” if the employee has potential claims and will sign a release in exchange for more severance. The converse is also true. If the employee doesn’t have any legitimate potential claims, he has little leverage (if any at all) to negotiate a better severance, and will have to decide whether to take or leave the severance. That can be a big, confusing decision. We look at all surrounding circumstances and regularly use our experience to help employees make these decisions based on the individualized facts of each case.
Be sure to watch the blog for future posts about what potential claims employees might have after they have been discharged, in addition to these archive posts:
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