What’s Up With Severance Packages?

Dear J.T. & Dale: I am not aware of any written or legal rules outlining severance pay, but the impression I get is that you receive two weeks’ pay for each year of service with the company. Is that how it works? — Jim

Dale: The old standard for severance was one to two weeks per year. Unless, of course, you were a CEO, in which case the word “weeks” would be replaced with “millions.” But, as I say, that’s the OLD standard. What’s the NEW standard? There isn’t one.

J.T.: There’s no standard because businesses aren’t required to provide severance. Through the years, many did so out of decency, but also as a way to try to preserve the company’s reputation as a good employer.

Dale: It also served as a way to keep its remaining employees from panicking — if co-workers are being laid off without notice or severance, a wise employee undertakes an urgent job search.

J.T.: Here’s the upshot: Do NOT assume there will be any “package.” Even if your employer did an earlier round of layoffs that included severance, they might not give them this time around, and it’s completely within their legal rights (except for those rare cases where your employment contract lays out an arrangement).

Dale: If there is a possibility of layoffs (and these days, when isn’t there that possibility?), not only should you begin a job search, but also start educating yourself about severance packages. (For instance, go to SmartMoney.com and search on “severance.”) Most people, numbed by the thought of being out of work, sign agreements without negotiating. But with a bit of preparation, you might persuade management to let you stay on to finish key projects, get benefits extended or get letters of recommendation. With some luck, your preparation might even keep you off the layoff list.

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