When A Severance Package Is Not A Severance Package

Dog Fight

All fun and games until someone gets hurt

Hey Sam! I got three months of severance and I didn’t even have to negotiate!“, said a friend from Manhattan after he got let go from his publishing job of seven years. “I think I’ll go to the Caribbean for a while and drink some Cuba Libres on the beach,” he went on to say.

Although I am happy for my friend who has been wanting to quit his job for the past year, I couldn’t stop shaking my head and thinking you dumbass. When I asked him whether he got any insurance coverage, he said no. When I asked him whether he got any job assistance training help, he said no. When I asked him whether he got a list of references from managers who would vouch for him when applying for a new job, he said no!

Little does my friend know, he got no severance package. I was a manager for the last five years of my career and he fell for one of the oldest employer tricks in the book. Let me explain.


A severance package is completely voluntary by a company. If a company is not headed towards bankruptcy and cares about their reputation, laid off employees will get a real severance. Corporations are made up of managers, and managers are not heartless people. If you’ve honorably served your firm for years, your company wants to help you during the transition.

The three months of salary my friend got was actually New York’s mandated WARN Act compensation for any employee that is included in a mass layoff. Publishing is big business in NY City, and my friend worked for one of the largest publishers in the world who employ thousands. Traditional print media is obviously on the decline thanks to the internet, so such mass layoffs are commonplace now.

New York State’s WARN act enables all mass laid off employees to collect three months salary from their employer after being terminated. If you lose your job on Jun 1, for example, you get to earn your normal salary all the way up to September 1 without having to come into work. Meanwhile, you are obviously eligible for unemployment benefits since you are unemployed. For almost a three month period, you could actually earn two paychecks.

The severance package is ON TOP of the NY State WARN compensation of three months. The average severance nowadays is 2-3 weeks per year worked. Hence, my friend would have got an additional 14-21 weeks of severance for a total of seven to eight months of total salary.

Finally, if my friend negotiated his severance, he probably would have received six months of health insurance (COBRA) fully paid for. He wouldn’t even have to pay the monthly premiums as normal workers do. Finally, he could have asked to enroll in a worker adjustment and training program that helps laid off workers find a new job. Instead, he got none of that.


My friend made about $10,000 a month. His previous company therefore saved roughly $45,000 by not paying him a severance. Now take $45,000 and multiply by 100 people, and you can see how his company can easily save millions of dollars on unsuspecting people.

The good thing is that my friend is ignorant about the way severances work and is happy. So if he’s happy, the corporation is definitely happy because they paid the minimum. His managers might even be high-fiving each other given money saved means bigger bonuses come year end!

I don’t know about you, but leaving $45,000 on the table and six months of COBRA makes me sick. Firms care deeply about their reputation. They don’t want you bad mouthing them to friends or ¬†heaven forbid write a negative blog post or editorial in the NY Times talking about how they screwed you over. A reputation takes forever to build, and a nanosecond to destroy.

Why do you think corporations have huge legal teams and human resources departments? Yes, your company wants to keep you happy. But don’t be naive. The main reason is so they can protect themselves from you!

Note: Getting laid off in the 4th quarter is particularly difficult for anybody who depends on a job to survive. Firms have generally spent their budget and are finalizing compensation plans. The majority of firms will hold off on hiring until the Spring as a result, making negotiating a severance package, no matter how small, vital to hold you over.

Updated for 2016 and beyond.



How To Negotiate A Severance Package

Sam started Financial Samurai in 2009 during the depths of the financial crisis as a way to make sense of chaos. After 13 years working on Wall Street, Sam decided to retire in 2012 to utilize everything he learned in business school to focus on online entrepreneurship. Sam focuses on helping readers build more income in real estate, investing, entrepreneurship, and alternative investments in order to achieve financial independence sooner, rather than later.

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  1. says

    Here is my question: Given the state of the economy, are companies still offering these large compensation packages, or have they scaled them back? I have heard friends say that their first severance package was much better than their second, due to the economy. But, maybe it was their lack of knowledge.

    Maybe you could suggest to your friend that he probably would have done better had he read your book, but not go into more details unless he asks. Good luck with that- what a tricky situation!

    • says

      It is a good rule that the first people to get a severance in the year get a better package than the last round of folks. It has to do with visibility and budget among other things.

      Imagine if a good portion of your compensation was tied to a bonus at year end, and you work for 12 months only to get laid off during Christmas. You’ve heard it many times before, and it will happen many times again.

      I want people to empower themselves and quit on their own terms. Knowledge is really power and wealth in this case. Power to the people!

  2. Money Beagle says

    From my experience, the company I work for gives nothing more than they are obligated. And the 2-3 weeks per year worked is a joke. It used to be 2 weeks, then they cut it back to half a week per year when the recession hit. But all this happened when our company got bought out by a VC firm, and they like to slice and dice everything, so maybe we’re not ‘normal’ compared to other companies since we have this VC element.

  3. says

    I’d help your friend out ONLY if he wanted the help. Sounds like he’s content, and that works for him. He may not believe in his negotiating skills, so he took the best he could get. If you can get the cash for him, and he want’s the help – go for it.

    I don’t know the rules in the US (and Canada for that matter) in terms of negotiating your severance, but wouldn’t it be impossible to go back after the cash in your friend’s case?

    I’m certain they had him sign here and there that would somehow cover you, him or his lawyer for that matter going back after any other cash.


    • says

      Indeed. Companies hope a percentage of employees don’t even try, and the company often ends up correct.

      Like companies hoping a portion of gift card buyers and recipients never use them. Oh my how many billions they save.

  4. says

    What can your friend do now? Anything? Or did he sign something? I think if he simply left $50K on the table, and there’s nothing he can do, I wouldn’t tell him. However, if he can go back to the company and say or do something, then I’d let him know.

  5. Freeat33 says

    I wonder like Kathleen if he can renegotiate for lost severance. He could simply say it caught him by surprise and wasn’t in the right frame of mind when he did sign it. My experience has been that 100% of the things you don’t ask for you don’t get!

    The Sultan of Severance
    The Prince of parting
    The “Terminated”er
    The King of canned
    The Reverend of Redundancy

    Anyone got any more?

    • says

      There really is no downside in trying, since he didn’t get any recommendations from his employer, job assistance, COBRA, or severance.

      Chances are small, but why not, BUT, I’m not going to be the one to tell him he left $50K on the table I’ve decided. I want to use this story as an illustration to everyone reading here to beware of chicanery!

  6. says

    No, don’t tell your friend now. It is done, right? Water under the bridge. He will be devastated. Just let him think he did his best, and the company did not cheat him. Maybe, if you have any employment lay lawyer friends you can ask them if legally he can do something about it. But before you know for sure, please don’t tell him anything.

  7. says

    I agree with Kathleen and Freeat33’s comments above – as a manager who has laid off many people in the past few years, I can tell you from experience that the separation agreements we have people sign (before handing over the check) are pretty ironclad. The time to negotiate is before signing – stand your ground and ask for what is fair. If you don’t ask, you don’t get.

  8. says

    Wow! I have never been laid off but you can bet that I would love even the minimum of three month’s severance. It sucks that your friend didn’t get more but if he’s happy, then he’s happy. He’ll know better for next time

    • says

      That’s the thing Vanessa. Everybody “loves the 3 months” until they realize, wait a minute… that was mandated by law in NY State, and they actually got nothing out of the good graces from the company.

      I guess what you don’t know can’t hurt you…. but now you know, you’ve got to figure out your rights.

  9. says

    First thing he needs to learn: talk to Sam first! :) Like Mrs. PoP, tell him once he gets going on a new job.

    But… if I were him, I’d take the 3 months and see if I can start something on my own with that as a cushion. That way he’ll never get laid off again…

  10. Mike Hunt says

    Hi Sam,

    Way to tie the post into your excellent book…!

    No good can come of telling your friend on what he missed out. It will be sour grapes best case, and may be taken out on you in the worst case.

    No, what you need is a network system that drives traffic towards your book when rumors are swirling about companies doing a big RIF…


    • says

      Thanks Mike. Before I wrote the book I had a bevy of posts in my Career category. Now that I’ve written the 100 page book, everything is that much clearer, relevant, and more powerful now.

      There is a lot of congruency with my book and blog and I love it!

  11. says

    I think employees don’t empower themselves with knowledge because some think the company has their best interest at heart, they also believe that companies are honest and will treat them fairly. Or they could just be lazy.

    I think most people think 2 weeks per year is standard. I was enlightened through you about what’s possible with layoffs.

  12. says

    I definitely wouldn’t tell your friend as it really would serve no purpose as he couldn’t go back and change anything. However, if this comes up at his next place of employment (years down the road), then you should DEFINITELY throw him some pointers.

    I’m not sure what I think about the employers making the required legal minimum seem like a good deal for the person being laid off. I understand why they do it, but I’m not sure it’s wrong for them to spin it as such. I’m pretty sure most people who are sitting at the negotiating table try to do the best to make sure they come out ahead.

    • says

      The only person negotiating is the employer in most cases. It’s basically, “take it or leave it” and have a nice life!

      It is traumatizing getting let go…. employees are in no good form to negotiate, unless they’ve prepared themselves BEFOREHAND…… this is what I encourage. Preparation… so when the situation presents itself.. you are ready to rock and roll!

  13. says

    Sounds too late now for him to get anything. If you bring it up at some point at least he’ll know he has more options for the future if he decides to go back to work someday. Every company is different but even some severance is better than none!

  14. says

    Ah! the evil deeds of business firms! I think it’s too late to let tell him now, you should have a long time ago. But i feel you are in a difficult situation right now. Torn between the urge to help him as a friend and being guilty of not doing so. I can’t even be in a right position to saying this to you but i feel bad about your friend.

  15. says

    I think you should let your friend stay happy. He might become bitter if he realizes he really didn’t get anything other than what was required by law.

  16. Jose says

    I recently got Transition Package for mass layoff. The meeting started with a comment “it is non negotiable.” If I don’t sign the paper, no transition package. It included transition pay, cobra and job assistance but length and terms are different from what you referred to. Shorter weeks of pay, portions of premium payment for cobra. All condition matches with company’s transition policy – handbook was handed off together.
    Is there still a room for negotiation?

  17. Roz says

    They are just saying that to intimidate you. Go back and ask for something high and start negotiations. That’s what my attorney said to do.

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