How Severance Pay Works When You Lose Your Job

You have no general right to severance pay. In fact, you have no right to much of anything if you lose your job.

I considered leading with something else, but when the truth is that hard, I think it’s better to get it out of the way as early as possible, don’t you think?

For at-will employees in the United States, these are the facts:

  • The severance baseline is zero dollars.
  • There’s no legal right to severance pay.

Kind of sobering, right?

To top it all off, if you just experienced a layoff or were recently fired, you’re probably feeling pretty crappy. And that’s 110% normal. You have to give yourself time to process the loss before you dive into the job search. Don’t underestimate the importance of self-care at this time.

When you’re ready to understand the legality of the situation, however, this is the place to be.

Because in terms of that whole “no general right to severance” thing? Well, of course, there are exceptions. I spoke with Helen D. (“Heidi”) Reavis and Alice K. Jump of the law firm Reavis Parent LLP to get the scoop on what, if anything, you’re actually entitled to if you find yourself in this unfortunate situation.

What Does the Law Say?

Some of the exceptions Reavis and Jump explained pertain to companies, usually large ones, that have a general severance plan for employees who lose their jobs. Often big corporations will have severance plans that basically say if they fire you because of restructuring or job elimination (something not your fault), they’ll give you X amount of money (typically, based on your years of employment, but this, too, varies).

One less-than-fun-fact:

Severance pay typically only includes your base compensation, not bonuses or benefits like health insurance (which is a whole other subject).

It’s often these types of large employers who also must “give notice” in the event of a mass layoff. That means if you’re part of a large group of employees being laid off, depending on the size of the company and the proportion of the layoff, federal law states you must be given at least 45 to 60 days’ advance notice (and sometimes longer in some states).

Those 60 days buy you time to start lining up something else so you’re not just shown the door the day the special projects department shuts down. It’s also super useful to be able to look for a new job while on the books of your soon-to-be former employer.

Note that different state laws may read differently, and, sometimes better, than the federal baseline. New York, for example, requires employees who are part of a mass layoff to receive 90 days “notice” instead of just 60. But be aware: The general baseline payday for a normal, individual lay-off is zero.

Reavis and Jump were quick to note that there are all sorts of criteria involved though—generally “it’s formulaic”—and, depending on how a company chooses to handle the situation, it may, in fact, opt for a route that allows for a staged or otherwise longer lay-off period or some other workforce reduction technique.

In short, there are ways for large organizations to legally avoid giving any kind of notice before the axe falls.

Is There Anything I Can Do?

Unfortunately, if you’re an at-will employee without a contract or enforceable company policy, there’s not much you can do to ensure you get paid following a termination or layoff. These are just the facts. Knowing them is more powerful than being in the dark because knowledge is power, right? And you do have some options.

According to Reavis and Jump (and, oh, I don’t know, the economy), the trend is for employees to receive less than ever before should they lose their job. Whereas four weeks of severance pay was once standard at many organizations, the new four is one, maybe two, and not until you sign a release of possible claims against the company. Money often comes with strings.

You’d be “well-advised to consult a lawyer” before signing a job exit document, says Reavis. “These are important commitments that could impact you for years to come. You owe it to yourself for anything you sign to be fully understood.”

What About My Vacation, Personal, and Sick Days?

Since there’s no legal requirement for you to be given vacation, if this benefit of paid time off wasn’t clearly stated in your job offer, or if there isn’t a clear company policy, or you had unlimited days, you unfortunately may not get paid for unused vacation days.

That said, many states like New York allow employees to get paid out their “unused but accrued” vacation time, which means money in your pocket if you’re terminated.

You’re also going to have to forget about getting paid for those unused “personal days.” Although Jump says it’s less clear what the courts may decide over time about these, usually employers aren’t required to pay for “personal time” that you haven’t used. And I’m sorry to say you probably also won’t get anything for sick days either.

State unemployment benefits are different from severance pay from your former employer.  Remember: Apply for unemployment benefits promptly after your job is over if you want to collect those benefits.

Is There Any Silver Lining? Any at All?

No—but also yes. You’ve just learned a hard lesson about the importance of negotiating job offers before you sign. As you start your next job search, make sure to ask questions such as, “What kind of exit package do you typically offer employees in good standing in the case of a layoff or restructuring?” and “Can you explain the vacation option to me and what happens with unused days if there’s a resignation or restructuring?” that will make it clear what would happen if you lose your job there.

Obviously, it’s awkward asking about what happens at the end of a job cycle before you’ve even started—but there are ways to obtain that information. Finding out about the terms of your employment that apply to everyone who works there before you start is just smart. That said though, remember companies are allowed to change their policies. They’re not the same as the law.

Now that we’ve gotten all the bad stuff out of the way, let’s talk about your next adventure! (And it’s truly OK if that’s “sit on the couch for a week and feel bad for myself.”) The right position’s waiting out there for you, and you will find it.

The best way to get started? Read this and this. They’re both written by people who’ve been where you are right now and gotten through it.

Note: This article has been prepared for general information purposes only. The information presented is not legal advice and is not to be acted on as such. If you need legal advice, you should consult an attorney.

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About Richard Moy

Richard Moy
Richard Moy is a Content Marketing Writer at Stack Overflow. He has spent the majority of his career in talent management, including a stint as a full-cycle recruiter and hiring manager. In addition to the career advice he contributes to The Muse, he also writes test prep and higher education marketing content for The Economist. Say hi on Twitter @rich_moy.

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