Separation benefits can be distinguished depending on the reasons for dismissal. Severance pay refers to any situation contemplated by Article 4 of Convention No. 158. The notion of ‘severance pay’ refers to individual dismissals, and these must be for a valid reason. The valid reason, however, could be related to the conduct or the capacity of the employee – or to the needs of the undertaking.
Redundancy payments refer to termination payments that arise from terminating a worker on economic grounds, such as redundancy or restructuring. The notion of “redundancy” refers to what happens when an employer no longer wishes the job an employee was doing to be done, by anyone. Thus, restructuring of a business, for instance, may lead to redundancy of a job or position. And so, to termination of employment. However, redundancy (and thus termination) can also occur outside a context of collective dismissal.
In some national systems, no distinction between the two types of payment is made. The amounts of severance and redundancy payments often vary depending on worker’s tenure in the enterprise. Their amount is generally calculated based on the worker’s wage, expressed either as a number of days, weeks or months. Convention No. 158 offers flexibility by leaving it up to national governments to define the best way of protecting workers in case of dismissal (Art. 12). In fact, separation benefits are just one possible type of protection, as workers may receive unemployment insurance or assistance benefits, or other forms of social security, or a combination of such allowance and benefits.