I. Severance pay as Hakaras Hatov to a worker and employee:[1]

Letter of law: There is no Torah requirement to give severance pay to a worker even if the worker was fired.[2] Nevertheless, according to Halacha, the conditions of payment for labor and employees follow the customs of the area, unless explicitly stated otherwise.[3] Thus, whenever an employee leaves his job, either due to being fired, end of contract, or quitting, the employer is obligated according to Halacha to follow the law and customs of his area of employment in terms of severance payments to the employee.

Act of Piety – Hakaras Hatov: All the above is from the letter of the law, however, as an act of piety, even in areas in which there is no custom to give severance pay, it is nevertheless proper according to Torah for an employer to do so as a gesture of gratitude for the work he received.[4] It is appropriate to publicize this ruling of employers giving severance pay according to Torah as a good will gesture and to abide by it [even though it is not obligatory from the letter of the law].[5] The employer is to give the employee severance payment, in accordance to the length of his employment and success of the business that came as a result.

[1] See Chinuch 482; Minchas Yitzchak 6:167; Tzitz Eliezer 7:48-10; Likkutei Sichos 19:153 [printed in Shulchan Menachem 7:78-82]; Hayashar Vehatov 1:30; 9:191

[2] There is no source in Torah, Talmud or Poskim to require an employer to give severance pay. The only obligation that exists regarding severance pay is from a master to his Jewish slave who is going free. [See Devarim 15:13-14; Chinuch ibid]

[3] See Michaber C.M. 331:1; Bava Metzia 83a; See also Rama C.M. 356:7 and Shach 356:10 regarding Dina Demalchusa Dina

The reason: As whenever one hires another to do work for him all the accustomed work obligations and rights are assumed to have been agreed on and obligated on by the employer, and all business conditions set by two sides are Halachically binding. [See Michaber ibid] Accordingly, it is not the secular law that creates the Halachic obligation but rather the Minhag Hamedina. [Article of Rav Shpurn in Hayashar Vehatov ibid] Alternatively, the obligation is not due to the Minhag but due to the law, as Dina Demalchusa Dina. [See Rama and Shach ibid; Minchas Yitzchak ibid]

[4] Chinuch Mitzvah 482 “Although the law of Hanakah is only in place by an Eved Ivri and in times of the Yovel, nevertheless, even today a wise man is to take lesson and give severance pay to one who worked for him”; Minchas Yitzchak 6:167; Likkutei Sichos 19:153 [printed in Shulchan Menachem 7:78-82] “Since it is possible that this ruling of the Chinuch applies according to all opinions it is therefore proper to publicize that one should abide by it”

The reason: This is learned from the Toras obligation upon a master to give severance pay to his Jewish worker. Now, just as the Torah desired us to show gratitude to a slave who worked for us, so too we should show gratitude to an employee. [Chinuch ibid] This Mitzvah of Hanaka is a subcategory of the Mitzvah of charity. [Shach C.M. 86:3-3; Likkutei Sichos ibid] Alternatively, the Mitzvah of Hanaka is due to payment for the work. [See Likkutei Sichos ibid]

Other opinions: Some Poskim explain that the above “proper custom” mentioned by the Chinuch is only according to those Poskim who rule that Hanaka is given to all types of Eved Ivri [so rules Rebbe Eliezer Kiddushin 14b; Tosafus Kiddushin 15b] however according to those Poskim who rule that only a slave that was sold by Beis Din needs to be given Hanaka [so rules: Tana Kama Kiddushin ibid; Rambam Avadim 3:12; Majority of Poskim, brought in Encyclopedia Talmudis Hanaka p. 678] then there is no room to learn that all workers should receive severance pay, as the Torah was not teaching us a “proper custom” by commanding this law. [Minchas Chinuch ibid] Thus, according to the Minchas Chinuch, the above ruling of the Chinuch is not Halachically binding [as we rule like Tana Kama ibid] and there is no need to give severance pay even as a good gesture. [Likkutei Sichos 19:153 footnote 4] The Minchas Chinuch concludes with a Tzaruch Iyun as it is not usual for the Chinuch to swerve from the opinion of the Rambam. The Rebbe however in Likkutei Sichos ibid explains that if one learns that the reason for the Mitzvah of Hanakah is due to charity [as learns Shach ibid] then it is possible to learn that even according to the ruling that a self-sold slave is exempt, one can still learn this case to other cases, and its just that the Torah makes a self-sold slave an exception. [Likkutei Sichos ibid]

[5] Likkutei Sichos ibid

[6] Yoman 1988, brought in Shulchan Menachem ibid