Severance pay-Pitzuyim:[1]

A. The letter of the law:[2]
There is no Torah requirement to give severance pay to a worker.[3] This applies even if the worker was fired. Nevertheless, according to Halacha, the conditions of payment for labor and employees follow the customs of the area, unless explicitly stated otherwise.[4] Hence, in countries that it is universally accepted to give severance pay, the employer must do so according to Halacha, unless he explicitly stipulated otherwise upon hiring the employee. However, in those countries that severance pay is not universally accustomed, there is no obligation upon the employer to do so, unless explicitly stated otherwise upon hiring. In all countries, the Halachic obligation is commensurate to the laws and customs of that country, and hence if severance pay is only awarded in certain cases and not in others, then the Halachic ruling follows likewise. The Beis Din must thus be knowledgeable in the severance laws of the country of the employer/employee to properly adjudicate a claim brought before them.

Eretz Yisrael:[5] Practically, in Eretz Yisrael, the universal labor practice of many years, which later became instated as law, is to give severance pay to employees, and hence the employer is bound by this requirement according to Halacha. If he refuses to do so, the employer can be taken to Beis Din, and forced to make the payment. All Batei Dinim in Eretz Yisrael currently recognize the obligation of Israeli employers to pay severance.[6] The accustomed severance pay is the last month’s salary per year of employment. [If, for example, a Judaic studies teacher received 5000 Shekel for his last month salary, and he worked for 15 years and was then laid off, he is to be give 75000 Shekel upon his leave.[7]] Nevertheless, as explained above, since the requirement is based on the custom of the country, in those circumstances that the custom in Eretz Yisrael is not to give severance pay, then the employer is not obligated to do so. Practically, in Eretz Yisrael, the custom is to give severance pay if the employee is fired or quits due to a worsening of working conditions, however not when the employee quits under other circumstances. In all cases of doubt as to the definition of “worsening of conditions” the matter is to be brought before a Beis Din to adjudicate.

United States:[8] There is no universal custom, or law, regarding severance pay in the United States, and hence a USA employer is not obligated to pay severance pay to his employee unless explicitly stated otherwise during hiring.

Chinuch institutions and Shul’s: There exists a universal custom of Chinuch institutions and Synagogues to give severance pay to Judaic studies teachers and Rabbi’s who are fired without due cause. Accordingly, the custom has created a Halachic obligation upon all learning Mosdos and Yeshivos to pay severance pay to terminated Judaic studies employees unless explicitly stated otherwise in their contract at the time of hiring. The accustomed severance pay is one month salary per year, or 8.333% per year of employment. [If, for example, a Judaic studies teacher received $5000 per month salary for 15 years and was then laid off, he is to be give $75000 upon his leave.]

B. The proper practice and Midas Chassidus:[9]
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.[10] 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].[11]

In what circumstances does this apply: The above ruling applies irrelevant of the amount of time that the employee worked by the employer, whether it be a long time or a short time.[12] It applies irrelevant of whether one was satisfied with the work of his employee or not.[13] It applies even if he was a contracted employee for a limited amount of time and his contract expired. This applies even if the employee decided not to renew his contract, and certainly if the employer decided not to renew the contract. It certainly applies if the employee was fired before the end term of the contract. It however does not apply when the worker quits his job early.[14] Even if the employee agreed to forgo his severance pay, nevertheless the employer is to pay him.[15]

How much to give: The employer is to give the employee severance pay commensurate to the amount of time he worked for him.[16] It is his decision as to how much to pay him and does not follow the rule of one month’s salary per year.[17] If the employer’s business became successful due to the work of the employee, it is proper to give him a larger severance pay in accordance to the benefit the business received.[18] Money’s that are rightful owed to the employee due to salary bonuses and the like are not to be included in the severance payment calculation, and the severance payment is to be in addition to it.[19]

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[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] Minchas Yitzchak 6/167; Tzitz Eliezer 7/48-10; Hayashar Vehatov 1/30; 9/191

[3] 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]

[4] 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]

[5] Minchas Yitzchak 6/167; Tzitz Eliezer 7/48-10; Hayashar Vehatov 1/30; 9/191

If employee and employer are in two different countries: See Rama C.M. 331/1 that we follow the area that the workers were hired in.

[6] The giving of severance pay was in practice by some labor unions even prior to it being instated into law, however at this time the Batei Dinim did not all agree to the obligation of severance pay by an employer. Once the law was passed and it became the universal practice in Israel, then all the Batei Dinim now enforce it. It is worthy to note as stated before, that it is not the secular law that creates the Halachic obligation but rather the Minhag Hamedina. [Article of Rav Shpurn in Hayashar Vehatov ibid]

[7] See here for the exact calculations of severance in Israel.

[8] Hayashar Vehatov 9/191

[9] See Chinuch Mitzvah 482; Minchas Yitzchak 6/167; Likkutei Sichos 19/153 [printed in Shulchan Menachem 7/78-82]

[10] 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]

[11] Likkutei Sichos ibid

[12] Chinuch ibid; Likkutei Sichos ibid

[13] Likkutei Sichos ibid

[14] Likkutei Sichos ibid, as a slave who ran away is not given Hanaka. [Kiddushin 16/b] However see Minchas Yitzchak ibid regarding a case that the employer quit due to delayed pay, and that some seevrence pay should be given

[15] Igros Kodesh 14/404, printed in Shulchan Menachem 7/82

[16] Likkutei Sichos ibid

[17] Minchas Yitzchak ibid

[18] Chinuch ibid; Likkutei Sichos ibid

[19] Likkutei Sichos ibid

[20] Rav Akiva Eiger C.M. 331 based on Michaber 330/5

[21] Michaber E.H. 118/6; Smeh C.M. 18/10; Minchas Yitzchak 6/167

[22] Yoman 1988, brought in Shulchan Menachem ibid