Breach Penalties in Labour Contracts: Advance Notice and Severance Pay

This paper analyses the determining factors of advance notice and severance pay provisions that appear in collective bargaining agreements. The theoretical model constructed is a simple bargaining model in which advance notice and severance pay play the role of breach penalties that the firm must pay for breaking the employment relationship. The hypotheses are tested on data gathered from collective bargaining agreements from different industries that were signed between 1970 and 1989.