Unfortunately, some people think they got a severance package when they really didn't. Instead, they got mandatory WARN Act pay, which is required by law when a company does a mass layoff.
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. A severance package is also known as an exit package or separation agreement.
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.
Federal WARN Act pay is usually two months of salary.
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. It 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. You can see how his company can easily save millions of dollars on unsuspecting people.
In fact, learn how one man negotiated a mass severance package worth over $40 million!
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!
Don't Quit Your Job And Lose Your Severance
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!
If you get laid off, absolutely file for unemployment benefits ASAP, even if you are getting WARN Act pay. You are unemployed, so you have every right to file for unemployment benefits.
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. This makes 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. Buy my newly updated severance negotiation book, How To Engineer Your Layoff: Make A Small Fortune By Saying Goodbye. You'll learn everything there is to know about getting a severance package.
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 is more popular than ever. It's recently updated with new case studies, resources, and tips. I've incorporated tremendous reader feedback, new strategies, and other 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.
Use the code “saveten” to save $10 at checkout!
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WARN Act: When A Severance Package Is Not A Severance Package is a Financial Samurai original post. All rights reserved.
Same thing happened to me. My company was conflating severance package and WARN Act. They gave me 15 weeks of severance and in the final calculation, subtracted “60 days notice). So they were blowing smoke up my ass with the severance package. They called the remaining amount ex gratia, which is correct. What the should have said was I am getting 7 weeks of severance + the mandatory 60 days (California). I told them this was confusing at best and disingenuous at worst. Now I’m negotiating because there was nothing about cobra, owed PTO, and owed commissions. It’s amazing that a company can get away with this kind of deception. Maybe it’s perfectly legal but it certainly is not right to assume your employees are idiots.
Many US companies will try to weasel their way out of not paying you. EVEN if you have another job lined, etc..etc..they still should pay at least 2 weeks per service year. Many For fortune 500 companies, it is not unheard of them offering NOTHING for severance or COBRA. THe sh$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.