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Does a Rhode Island business have to provide severance pay?

On Behalf of | Dec 26, 2023 | Employment Law

Suddenly losing a job is more than just inconvenient. It can lead to financial devastation. Rhode Island is an at-will employment state, which means that companies can fire workers with little warning and for almost any reason. People often do not have enough savings to cover household expenses for more than a few months if they lose their jobs unexpectedly. They can take much longer than that to find a job offering comparable pay and benefits.

Workers in Rhode Island who lose their jobs may hope to secure severance pay from their employers. Does a business operating in Rhode Island have an obligation to offer severance packages to workers upon terminating their employment?

The law does not require severance pay

Rhode Island does not require that employers offer severance packages to workers that pay them after they leave their role or provide them with ongoing benefits during their transition out of a position. Instead, the law merely requires that Rhode Island employers pay workers for any time worked until they exit their positions. The company may also need to provide financial compensation for unused paid leave benefits.

However, workers in better-compensated positions, ranging from salespeople and engineers to executives, may have severance clauses in their employment contracts. Generally speaking, companies need to uphold the terms of the contracts they negotiated with workers when they initially hired them.

If the company promised severance pay for an unexpected termination or layoff, then it generally needs to make good on that promise. However, companies can sometimes void severance pay clauses if they terminate a worker for cause. It is common for employment contracts to include terms that allow companies to alter or eliminate severance packages if the company terminates a worker for misconduct or poor job performance.

Workers can sometimes negotiate a severance package while leaving a job at an organization, but they are usually in the best position to obtain a severance package when negotiating at the beginning of their employment. They may also need to prepare to take legal action when they have a severance agreement but their employer refuses to uphold it. In these ways, understanding the rules that apply to severance pay may benefit people starting a new job or unexpectedly leaving one.