DOES A YESHIVA THAT CLOSES DOWN HAVE AN OBLIGATION TO GIVE SEVERANCE PAY TO ITS RABBEIM IF IT HAS MONEY AVAILABLE?
Today it is generally customary to give severance pay, as obligatory according to secular law. However, there are several institutions that do not pay salaries “officially,” and which therefore claim to be exempted from paying severance. In general, the claim to exemption can only be valid if it is common knowledge that the yeshiva in question does not pay severance, or it was made explicit at the time of hiring, such that a Rebbe who joins the Yeshiva does so knowing that he will not receive the payment upon leaving his position. Otherwise, the institution is obligated in paying severance.
However, closing down is not the classic case of having to pay severance, and even if a company has a legal obligation to pay severance in case of closure (this depends in Israeli law on the type of company, and I do not know how it works in American law), it is difficult to say that this is “customary” such that it would become obligatory according to Torah law. [According to many authorities, the presence of an obligatory secular law itself would not obligate the yeshiva, becasue the principle of Dina De-Malchusa does not apply between two Jews.] Under this assumption, the yeshiva would not be obligated. Yet, because the answer to this question depends on local customs and circumstances, it is essential to consult with a local posek who is expert in the field.
Even if no obligation applies, it is certainly worthy practice to pay severance, so that the Rebbeim will have some continued income as they search for new positions.
Sources: See Pischei Choshen, Chap. 7, note 17; Mishpat Poalim p. 92; concerning dina de-malchusa, see Shach (73:39), Chazon Ish, Bava Kama no. 23.