Unfortunately, some people think they got a severance package when they really didn’t. Let me share when a severance package is not a severance package. This way, you’ll learn how to better negotiate for one the next time you’re faced with a layoff or acquisition.
When A Severance Is Not A Severance Package
“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 dummy.
When I asked him whether he got any health or unemployment benefits insurance coverage, he said no. When I asked him whether he got any job assistance training help, he said no. Then 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. It is discretionary. If a company is not headed towards bankruptcy and cares about their reputation, laid off employees will get a real severance. Sometimes, executives will get golden parachutes after a merger as well.
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 better you are as an employer, the greater your chance of receiving a severance.
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.
WARN Act Pay Is Different In Each State
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 Money Laying You Off
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 of severance 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.
Don’t Confuse A Severance Package With WARN Act Pay
Below is another example of someone confusing a discretionary severance package with mandatory WARN Act Pay. Stripe is laying off 14% of its employees and offering a uniform 14 weeks of severance. The 14 weeks of severance is most likely WARN Act pay.
Get Smarter About Severance Packages
Know the rules. 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 severance negotiation: How To Engineer Your Layoff: Make A Small Fortune By Saying Goodbye.
I originally wrote the book in 2012 after I had negotiated my six-figure severance package. It was the biggest epiphany moment in my life when trying to figure out how to leave my finance job. Today, the book has been revised five times and is 200 pages long thanks to tremendous reader feedback, new strategies, and updates.
Please never get fired or quit your job. If you are going to quit your job anyway, you might as well try to negotiate a severance package. The severance was my catalyst for leaving and living the life I’ve always wanted at age 34. Hopefully you can do the same.
Related posts:
How To Negotiate A Severance As A High-Performing Employee
The Value Of A Severance Package Has Gone Way Up
Many US companies will try to weasel their way out of not paying you. EVEN if you have another job lined, etc..etc..they still should pay at least 2 weeks per service year. Many For fortune 500 companies, it is not unheard of them offering NOTHING for severance or COBRA. THe sh$thole USA. Corporate sh$tholes.
Hence, why employees who want to negotiate a severance should read, How To Engineer Your Layoff, to learn all the severance negotiation strategies.
I work for a large law firm. We were told via voicemail last Tuesday that they are reconfiguring the standard legal secretary role and that some of us may want to apply to new positions with a different name. We are to find out tomorrow at 11:00 in a meeting, nobody knows who is conducting the meeting, about a voluntary severance package available to all secretaries. We’re talking thousands of secretaries at this firm. There are a ton of secretaries who have been there for 30 years or more. They are offering 2 weeks per year. I’m glad I happened upon your blog, may be needing some advice.
the us empire has a very unusual and highly Atypical “employment at will doctrine”–basically, your slave owner, the corporation can fire you anytime for any reason, no reason, etc….It’s because they have a divine right to their employees to own you. They only have to pay for your labour. You have very few if any labour rights in the us empire. Good luck, and good night americans
I worked for 14 years for a small legal firm. There is nothing in the employee handbook about severance pay. I see now, the job was never a good match for my skills, but at the time I took the job, I was desperate for work. Over the years, when I decided to ask for support for perceived harassment and an office redesign that turned my workspace into a set up that exacerbated the PTSD (there was no escape route.) A combination of work stress and a family crisis required me to take time off. They brought in a temp, and they kept her on part time. She is younger, and less expensive (I crunched the numbers.) She will be taking on my position framed as my position being done away with to have someone do more than I was doing. I had the courage to ask for a severance, and they offered me $1,500. A family member offered to pay for an attorney to negotiate a larger severance, but at this point, I question whether the stress is worth it, and living in a small town, it could make finding work difficult. At 59.5 remaking my life is an interesting challenge
I’m facing a layoff this Friday 7/27/18. In CA, worked there 13yrs. Company gave us a 5 month notice with the standard 2 weeks/year + 3 weeks severance. Work assistance and COBRA were offered (at a high rate). I’m curious if I’m entitled to more?
He’s getting a new position in the hospital as director so in less than two weeks we were told that he’s closing the office so I just want to know because he’s leaving and mine title to separate space I can’t find anything in Google thing that thank you for your help
Good morning we were just told less than two weeks that we were going to be laid off because the doctor got a new position in the office I would like to know if I’m entitled to severance pay I have worked with him for seven years been there since day one for him .
My galpal is losing her job end of December, 2016. They told her she would get a severance package, but it’s now over a month and she has seen no package. Can they legally take that long and not tell her what her package will be? And this may be why they haven’t shown any deal. The company overall is now being sold and they’re closing the deal before she is to be laid off. The new company won’t have to pay the severance, right? Or, will they?
Sam
I just got laid off 3 weeks ago. You’re spot on about warn act etc. I got 3 months + 3 weeks for each year i had been at my employer.
Question – Can i apply for unemployment while I am still “technically employed” for 3 months? I thought that since I am collecting paycheck, I cannot collect unemployment benefit – hence i did not apply, even though I was laid off about 3 weeks ago.
Thanks.
You can. Because your company laid you off.
May I ask how you found this article?
I was doing a google search on what to do after getting laid off (don’t remember the exact keywords). Your site came up around no. 5 or 6 in google search.
I already started the process of filing an unemployment claim with NY state (their claim system is a massive pain, involving system outages and sending them some of the documents and back claims in writing).
Great to hear Google is working. I updated my severance negotiation book for 2016 with 50 more pages (Total 150 pages). It’s the only severance negotiation book on the market. Everybody should read it because unless you have a pension with a nice golden parachute, you will eventually leave your job. And when the time comes, you want to walk away with as much money as possible!
Sam.
Quick question – What would be my ‘last day of work’? (This is a question that NY dept. of labor is asking me).
I was served ‘Notice of termination’ on 30th march with ‘termination date’ of 30th june (3 months later). So it seems to me that the ‘last day of work’ is 30th june, even though i was asked to stop coming to work on 30th march.
Which date you think should be the ‘last day of work’?
March 30
Thanks. Appreciate it.
although I could also argue that ‘last day of work’ is 30th march, since that is the day that I physically went to my work place and performed some work, before the notification of termination.
A bit confused. Can someone please chime in?
I think for most people it is also a question of how do i open the discussion with my manager or HR without sounding like I am blackmailing / putting pressure on them and get fire back.
HR can always respond it is unlawful to blackmail and it is now recorded. any second attempt will be taken to legal / court.
how did you open the discussion ?
thank you
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.
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?
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.
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.
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!
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!
He’s traveling on vacation and living a good life now :)
I hope he doesn’t read your blog, Sam…
-Mike
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!
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.
Anything is possible with a layoff. Everything is negotiable. But if people don’t know their basic rights, then people won’t be good negotiators. They’ll get railroaded.
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…
-Mike
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!
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…
Cheers William. 3 months will go by in a blink of an eye. He’s traveling on vacay now. Might as well. It’s tough finding a job in 4th quarter of the year.
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
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.
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.
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.
Yes, what is done is done. Hopefully his story can illustrate some new insight for others who have not experienced this yet.
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?
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!
I wouldn’t tell him. Why make him feel bad about something he has no power to do anything about now?
If he’s happy, it’s tough to want to burst his bubble. Maybe only tell him once he’s back on his feet and at a new job – so that he won’t get a fast one pulled over on him again.
Good idea, and the right call.
I think generally 2 weeks/year up to about a half year + COBRA payments + references is a reasonable goal. You might not get it, but the cost of trying is zero.
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.
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.
Thoughts?
Eddie, that is the rule I’m going more and more by nowadays, “helping people who want help.” It’s useless to do so otherwise now as people need to fail in order to want help. I think it’s unfortunately too late for him.
How could he know if he wants your help or not if he doesn’t know that your alter ego Financial Samurai wrote a book on the topic already?
Because I gave him a basic framework. He didn’t want to listen and was impatient.
All is rational, so it’s all good.
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.
MB, everything is negotiable. A half week is a joke imo, but at least it’s better than 0.