“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.
WHAT IS A SEVERANCE PACKAGE
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.
HOW CORPORATIONS SAVE BIG BUCKS
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. Know the rules. And if you want to learn everything there is to know about severance negotiations and giving yourself a long financial runway to do something else, you can buy my newly updated book: How To Engineer Your Layoff: Make A Small Fortune By Saying Goodbye