Is It Permissible to Accept a Severance Payment When One’s Employment is Terminated?

Answered by Shaykh Taha Abdul-Basser

Question: Assalamo Alaikum,

I have worked in various organisations where people have been granted different types of lump sum payments. The first is a severance payment for termination of their employment contract. The second is a redundancy payment that pays them a certain amount based on their length of service with the company if the company decides it no longer requires the services of an employee. A third type is a grievance payment that companies often make in order to ensure that individuals do not raise legal cases against them in order to claim greater compensation for grievance. Please would you be able to shed some light on the permissibility of these payments?

Answer:

Bismillahi r-rahmani -r-rahim Al-hamdu li-llahi rabbi l-`alamin wa s-salatu wa s-salamu `ala sayyidina Muhammad wa-`ala alihi wa-sahbihi ajma`in wa-man tabi`ahum bi-ihsan ila yawmi d-din `amma ba`d

1. It is permissible for an employee who has been terminated to accept a severance payment since it is, in essence, a unilateral bonus payment from the employer that is not stipulated in the employment contract (or implicitly established by custom) and is therefore not usury (riba). Rather it is consistent with the Prophetic practice of compensating one’s creditor with better (more) than what one actually owes. (Zad 113; Rawd 2:28; Kashshaf al-Qina` 5:1547)

Among other indicants, our legists (fuqaha’) cite as an indicant of the permissibility of unilateral overpayment the hadith reported by Muslim on the authority of Abu Rafi` (radiya llahu `anhu): “The Messenger (salla llahu `alyhi wa s-sallam) borrowed a young camel (from someone). Then some camels (given in) charity arrived. He (salla llahu `alyhi wa s-sallam) told Abu Rafi` to repay the man his young camel. (Abu Rafi`) went to the camels and said ‘I can not find anything other than a superior, [older] camel.’ He (salla llahu `alyhi wa s-sallam) said ‘Give it to him, for indeed the best of people are those who are best in repayment'” (Muslim, k. al-musaqah wa l-muzara`ah 22/118, 1600).

Imam al-Nawawi comments on this hadith:

In the hadith is (an indication) that it is commendable (mustahabb) for a person who owes a debt, whether (arising) from a loan or some other (type of transaction), to repay better than that which he owes. This is the prophetic practice (sunnah) and (an expression of) praiseworthy personality traits (makarim al-akhlaq). (Doing so) is not a loan that entails a benefit [fpr the lender] (qard jarr manfa`(an))–which is prohibited–because what is prohibited is [a surplus] that is *stipulated* [our empahsis] in the loan contract. Our position (madhhab) [i..e the Shafi`i position] is that it is commendable to pay more than what one owes; and that it is permitted for the lender to accept it, whether the the debtor increases the quality or the number, by [for example] repaying eleven when [the lender] gave him ten as loan. The position of Malik (on the other hand) is that an increase in number is prohibited. The proof [for the position] of our fellow [Shafi`is] is his (salla llahu `alyhi wa s-sallam) statement <>

2. It is permissible to accept a redundancy payments, since such a payment is also a non-stipulated, unilateral bonus payment (see no 1 above).

3. It is permissible to accept grievance payments since they are either a) non-stipulated, unilateral bonus payment (see no 1 above) or a payment meant to cover in full or in part the compensation that was due to the employee as per the contract and prevailing custom.

Wa-llahu a`lam.

afqar al-ibad ila rahmati rabbihi ta`ala
taha bin hasan abdul-basser
26 Jumada II 1434 = May 6 2013

References

Sahih Muslim

al-Nawawi, Sharh Sahih Muslim/

al-Buhuti, Mansur b. Yunus/al-Hijawi, Sharaf al-Din. Kashshaf al-Qina` `an Matn al-Iqna` [=Kashshaf]. Ed. Ibrahim Ahmad Abd al-Hamid. (Dar `Alam al-Kutub: Riyad) 1423/2003

al-Buhuti, Mansur b. Yunus/al-Hijawi, Sharaf al-Din. al-Rawd al-Murbi [=Rawd].

al-Hijawi, Sharaf al-Din/al-Maqdisi, Muwaffaq al-Din Ibn qudamah . Zad al-Mustaqni` Mukhtasar al-Muqni`.