Question: I always act in accordance with Torah law with regards to my business dealings. I was recently terminated from my place of employment at which point I requested monetary compensation from my employer, in accordance with the law. My employer, a Torah-observant Jew, claims that according to Torah law, there is no such thing as compensation/severance pay. Is he correct?
Answer: The Torah commands us that when one frees a Jewish servant (something which is no longer applicable nowadays), one may not send him away empty-handed, as the verse states, “You shall surely furnish him from your flock, threshing floor, and vat with which Hashem your G-d has blessed you.” Although this Torah obligation does not apply to an employee who has been dismissed since he is not a slave and the Torah refers specifically to a slave, nevertheless, the Sefer Ha’Chinuch (Mitzvah 450) writes that “the root of this Mitzvah is so that way me acquire stellar character traits in our soul etc. Our glory is evident when we show mercy to someone who has served us by giving him gifts as an act of kindness, besides for what we have stipulated as part of his wages.” This is basis for the Mitzvah to give a worker who has been terminated a respectable amount of money as severance pay upon his dismissal. It seems, however, that this is not an actual halachic obligation and is rather a Mitzvah incumbent upon the employer in that if he wishes to act in a just and upright manner, he should compensate his fired worker handsomely.
Maran Rabbeinu Ovadia Yosef zt”l (in his posthumously published Yabia Omer, Volume 11, Choshen Mishpat, Chapter 20) discusses this issue in a response he penned approximately two years before his passing. He concludes that since the custom today in Israel and other civilized countries is to compensate a worker by means of severance pay upon terminating him, there is even room to obligate an employer to comply with this custom, as the Talmud Yerushalmi (Chapter 7 of Baba Metzia) states, “A custom nullifies Halacha.” (Nevertheless, this idea does not apply in all cases and is only applicable in the context of this Halacha regarding severance pay.)
Indeed, when Maran zt”l was a member of the Jerusalem Rabbinical Court (in the year 5720/1960) alongside the Av Bet Din, Hagaon Harav Eliezer Yehuda Waldenberg zt”l, a case came before them whereby a woman who was an employee of the General Senior Living Facility of Jerusalem was dismissed and she was claiming severance pay from institution’s administration. The Bet Din ruled that the institution was obligated to compensate this woman who was an employee of their institution.
At the end of this response, Maran zt”l writes that Hagaon Harav Moshe Feinstein zt”l would commonly rule that employers in the United States were obligated to pay severance to a terminated employee as this was considered an established custom. Thus, after quoting many other Acharonim who rule likewise, regarding the aforementioned question, according to Maran zt”l, the employer’s claim is incorrect and he must compensate the worker with severance pay as is customary. If there are any further doubts or disagreements regarding this matter, both parties should consult a competent Bet Din.