In 2023 so far, more than 139,000 people have lost their jobs just in the US tech industry. As the economy, industries, and technologies continue to evolve, and more so with the advent of artificial intelligence, an increasing number of employees might be faced with the harsh reality of losing their livelihood. Bad policies do not help either. In this situation and furthermore, severance pay can appear to be a panacea, offering a compelling financial cushion to soften the blow of a layoff. But is it prudent to accept a severance package without truly comprehending what it entails?
Matthew Blit, a leading employment law attorney in the country, has offered valuable insights on this issue to help those navigating this uncertain terrain. With an extensive background in the field, Blit stresses the significance of being well-informed before consenting to any severance pay. He cautions, “Employees typically sign without even reading them,” revealing the need for a deeper understanding of what these severance agreements entail.
In this guide, we will demystify the “carrot” of severance pay and uncover its true implications for employees. As Blit said, “There’s no such thing as a standard severance agreement”, so let’s take a closer look at the specifics of a severance agreement and how you can make the best choices in the face of uncertainty.
What is Severance Pay?
When your job ends because of new technology or higher taxes, your employer might offer you something called severance pay. This is like a thank you for working there and can help you while you look for a new job. Severance pay is often provided in situations like:
- Job loss from downsizing
- Removing a job or department
- Changes in the company structure
- Not fitting well in a role or company culture
Sometimes, if someone quits or gets fired, they can get it too. The amount you get depends on how long you worked there, and every company has different rules about it. Employers often explain their severance pay rules in the employee handbook, so everyone knows what to expect.
Severance packages generally come as a one-time, taxable payment that includes your usual pay as well as additional perks like insurance benefits and unused sick days.
Interestingly, not every severance package comes with a severance agreement. A severance agreement is a legally binding contract between the employer and employee that outline the terms and conditions of the employee’s termination or layoff. This agreement typically includes details about severance pay, benefits, and any other compensation the employee is entitled to receive.
It may also contain non-disclosure, non-disparagement, and non-compete clauses. So when you sign a severance agreement, you agree to certain conditions, such as waiving your right to sue your employer or to work for a competing company.
But as we said, not all employers require a severance agreement, and some may offer severance pay without any formal agreement at all. However, if you’re being offered a severance agreement, it’s critical to review it carefully and understand the terms before signing. It may be an astute idea to consult with a severance agreement attorney who specializes in employment law to ensure that your rights are protected.
Why Companies Offer Severance Pay
According to the U.S. Department of Labor, employers are not legally required to provide severance pay. Stemming from this, some companies may have policies or contracts that say they will. These policies generally apply to employees who are being laid off, but sometimes fired employees may also receive severance pay. Some employers might offer severance packages for other reasons as well:
If your employment contract says you’ll get severance pay when your job ends, your employer has to honor that agreement.
Giving severance pay helps companies stay on good terms with employees who are leaving. This can be important for the company’s image and might lead to positive word-of-mouth.
Severance pay gives you some financial support while you look for a new job, making the process less stressful and reducing any hard feelings.
Lowering legal risks
When companies offer severance pay with a severance agreement, they can ask employees to give up certain rights, like the right to sue for wrongful termination. This helps protect the company from potential legal problems.
Keeping good employees
Offering severance packages shows current employees that the company cares about them, even in tough times. This can boost morale and make it more likely that talented workers will stick around.
Encouraging voluntary exits
Sometimes, companies provide severance pay to motivate employees to leave voluntarily or retire early. This can help the company downsize or restructure more efficiently.
When Severance is Paid Out for the Wrong Reasons
At times, large companies like Google, Alphabet, and Twitter might use severance pay as a strategic move to prevent employees from speaking out against the organization or taking legal action. Matthew Blit, our leading employment discrimination attorney, has described severance pay as “the carrot in front of employees,” suggesting that companies dangle this tempting offer to sway employees from voicing their concerns or sharing unfavorable information.
But why would these companies be so concerned about employees speaking out? One reason is that negative media coverage and press can have a significant impact on a company’s reputation, and affect its stock value and public perception. In the tech industry, where thousands of people have recently lost their jobs, companies might be especially cautious about maintaining a positive image.
If you’re offered severance pay, try to understand the underlying motivations behind the offer. Don’t let the allure of a “carrot” distract you from making well-informed decisions. Be aware of your rights, seek legal advice if necessary, and remember that your voice and experience are valuable. It’s essential to prioritize your best interests and not be swayed by the incentives that may be presented to you.
What to Do When Offered a Severance Package
When you’re being let go and the company offers you severance pay, take your time before you sign on the dotted line. Don’t rush into a decision. You have the right to review the severance package and take some time to fully understand its terms and implications. Here are some steps we recommend taking:
- Carefully read the severance agreement and make sure you understand all the conditions, including payment amounts, severance benefits, release of claims, confidentiality, and non-disparagement clauses, if any.
- If you’re unsure about any aspect or if you think there might be room for negotiation, consult with an employment attorney. They can help you understand your rights and advise you on the best course of action.
- If you believe the package is inadequate or unfair, consider negotiating the terms. An attorney can help you with this process so your interests are well-represented.
- Consider the financial implications of accepting or rejecting the severance package. Assess your current financial situation, your job prospects, and the potential impact of your decision on your future employment opportunities.
- After careful consideration and consultation with legal counsel, make an informed decision on whether to accept, reject, or negotiate the severance package.
- Once you have made your decision, communicate it clearly and professionally to your employer, either in writing or through a meeting with the appropriate representative.
- Regardless of the outcome, maintain professionalism in all your interactions with your former employer. This will help protect your reputation and make it easier to move forward in your career.
Keep in mind that you don’t have to accept the severance or sign a severance agreement. Your employer cannot force you to sign it either – if they do, it won’t be upheld in court. We only recommend accepting the severance offer if the financial benefits are worth any legal rights you must give up – for instance, the right to sue your employer.
The WARN Act and Severance Pay
The Worker Adjustment and Retraining Notification (WARN) Act is a US labor law that aims to protect workers and their families by requiring employers to provide advance notice of plant closings and mass layoffs.
Under the WARN Act, employers with 100 or more full-time employees must provide at least 60 days’ written notice before they start laying off a significant chunk of their employees at a single site of employment. This notice must be given to affected workers or their representatives (such as a labor union), the local chief elected official (usually the mayor), and the state dislocated worker unit.
Although the WARN Act doesn’t directly mandate severance pay, it does emphasize the need for employers to provide reasonable notice to employees who are going to be terminated, so they can have sufficient time to prepare for the transition.
In some cases, employers may offer severance packages to help ease the burden on employees during the notice period required by the WARN Act. The advance notice can give employees time to review their severance package, negotiate better terms if necessary, and seek legal advice if they feel it is needed.
When Severance Pay Comes with Strings Attached
Did you know there are situations where you could end up owing your employer money after receiving a severance package? There’s a reason why we stress the importance of carefully going over your employment contract and severance agreement before signing them! If you do that, you just might discover any potential financial liabilities that could arise once you get your severance. These usually include:
Paying back signing bonuses or relocation expenses
Sometimes, your employment contract might say that if you leave the company within a specific time after getting a signing bonus or help with moving costs, you’ll need to pay back part or all of that money.
Sorting out overpaid wages or benefits
If you’ve accidentally been paid too much or received extra benefits during your time at the company, your employer might take the extra amount out of your severance pay or ask you to give it back.
Dealing with breaches of contract or non-compete agreements
If you break your employment contract or don’t follow a non-compete agreement, your employer could try to get back any losses, which might be more than the severance pay you received.
Handling unpaid advances or loans
If you got an advance or loan from your employer and haven’t fully paid it back or earned it by the time you leave, they might ask you to repay what’s left.
What is Included in a Severance Package?
A severance package is a set of benefits and financial support offered to you when your employment comes to an end. While the amount can vary depending on the company and your specific situation, a typical severance package includes:
Severance Pay: This is a lump sum of money, often based on your length of service with the company. For example, you might receive one or two weeks of pay for every year you worked there.
Continued Health Insurance: If your employer has 20 or more employees, you might be eligible for continued health insurance coverage under the Consolidated Omnibus Budget Reconciliation Act (COBRA). This allows you to keep your current health plan for up to 18 months, but you’ll likely have to pay the full premium (i.e., employer and employee portion of the plan) yourself.
Unemployment Benefits: If you’re eligible, you can receive unemployment benefits from your state to provide temporary financial assistance while you look for a new job.
Payment for Unused Vacation or Sick Days: Depending on your company’s policies and state laws, you might receive payment for any unused vacation or sick days you have accrued during your employment.
Job Placement Assistance: Some companies offer outplacement services to help you find a new job. This can include resume writing, job search support, and career coaching.
Retirement and Stock Options: If you have a retirement savings plan or stock options with your employer, your severance package might include information about how these benefits will be handled after your employment ends.
The timing of when you will receive your severance will depend on your employer’s policies and the terms outlined in the agreement. Generally, it’s provided shortly after your employment ends or within a few weeks of your last day at work. In some cases, the company may choose to pay it in installments over a certain period, rather than as a lump sum severance payment. The specific payment terms should be clearly laid out in the severance agreement.
Negotiate a Better Severance Package and Protect Your Rights with Legal Advice from Levine & Blit
While New York state laws don’t require severance pay, various factors such as employment contracts, collective bargaining agreements (only for labor union members), and the New York WARN Act can influence the package you receive. And if you believe your termination was due to discrimination or retaliation, our dedicated attorneys at Levine & Blit, LLC will work tirelessly to pursue justice and potential severance pay on your behalf.
Our attorneys are recognized for their deep domain knowledge in employment matters, including severance negotiations and other related issues. With a proven track record in this field, we have what it takes to obtain the maximum possible severance package for you. Here’s how we can help:
- We will carefully review your severance agreement and make sure you understand each provision and its implications.
- Based on our in-depth analysis, we will work with you to develop the best strategies to negotiate your severance. For example, if your initial severance offer includes lower-than-expected severance pay, we may advise you to focus on negotiating additional benefits, such as extended health insurance coverage or outplacement assistance.
- If your agreement contains a restrictive non-compete clause, our team could negotiate to have it modified or removed altogether to increase your employment opportunities moving forward.
When you’re already feeling vulnerable due to the idea of no longer having a job, negotiating a higher severance package with the employer – who is holding most of the power – can seem extremely intimidating. But that’s what we are here for. For the legal team at Levine & Blit, LLC, your financial well-being is the top priority. So call us at 646-461-6838 or contact us online for a Free Case Evaluation, and let us guide you through this difficult period.