So your previous employer went through a layoff / reduction in force, and now they’re paying you severance payments. Do those severance payments end when you find a new job? The short answer is: it depends on the terms of your severance agreement. Let’s break down the possible scenarios to help you plan your next move carefully.
How Does Severance Pay Work?
In Texas, and the US in general, companies are not legally required to offer you severance pay. But some companies include a severance provision in your employment agreement, and others may offer severance packages at the time of layoffs or termination. A severance agreement is a way for both parties to get what they want: the employee wants financial stability during a time of unexpected joblessness, and the employer wants there to be no legal claims made against them after termination.
According to the EEOC, a severance agreement lays out the following terms:
- the official date of termination
- payments – how many weeks, as well as options on how you want to receive the severance (lump sum payment vs. spread over weeks)
- benefits – which benefits are still active, and for how long?
- references
- return of company property
- release of legal claims against the employer
Let’s zoom in on that second item: the payments themselves, and how often they occur.
When Could Severance Pay Stop?
Read your severance agreement carefully (and consider getting the aid of an employment attorney to ensure you fully understand) – it typically lays out the conditions that allow for pay and which conditions cause the stopping of severance pay. Also, be sure to understand the fundamentals of your severance package before making a decision on starting your new job.
Let’s take a look at a few scenarios where severance pay might stop:
- Ongoing severance pay could be conditioned upon you remaining an employee of the company – so if you start a new job, that start date at the new job becomes the end date at the old job. That also means severance pay would stop from that day forward.
- If your severance agreement has a clause that says payments will stop if you find new employment during the severance period
- If you were already on the hunt and accepted the new job before your officially listed termination date at the old job – this could invalidate the severance agreement and make you ineligible for severance pay at all.
- If the former employer has legally completed all of the obligations they promised in the original employment contract and severance agreement: for example, all unused vacation time has been compensated and other promised benefits have been compensated to you through severance payments up to this point
- If you were to breach the severance agreement (for example by suing your former employer despite the severance agreement waiving all claims you had against it), the former employer would be within its rights to stop making severance payments.
- If your former employer goes out of business or files for bankruptcy before the end of the severance period, it is possible that the severance payments could stop.
What Actions Should You Take Right Now?
- Review your severance agreement carefully – the importance of this step cannot be overstated. Which payments do you receive, over what time period, and until what condition is met?
- Understand how the agreement is defining the termination date – this matters immensely – am I still technically an employee while receiving severance? Does that make me subject to restrictions?
- Map it out – Your start date at the new company could signal the end of benefits from your old company. Sketch out the financial scenarios to make sure that you’re covered: How much money would I make if I started the new job on this date vs. that date? Build a plan that works best for you, based on your complete understanding of the severance package
- Consider getting guidance from an experienced employment lawyer – if you feel uncertain even after reading this article and your severance agreement, consider getting the help of an experienced employment lawyer. The consequences of not understanding your agreement could be more expensive than simply seeking legal advice.
- Make sure that your start date with the new job is perfectly aligned with the gameplan you understand from your severance agreement, your lawyer, and your financial plan.
- Be honest with your former employer – if your severance agreement states that you are only to receive severance pay as long as you’re not employed with another company, then you don’t want to be in a position of having to pay that severance back to them. Don’t let legal trouble find you: cover yourself and be honest now, so that you are always honoring the agreement you signed.
The Lawyers at Jackson Spencer Understand Severance Pay
The legal team at Jackson Spencer Law has decades of experience with navigating the nuances of severance agreements. We’re here to help you understand your agreement, negotiate favorable terms, and ensure your transition to a new job is seamless and financially sound. Our expertise in severance law can be your safeguard against unexpected challenges during this transition period. Call our team today for a free consultation and let us refer you to an attorney on our staff who can help you fully understand the ins and outs of your severance agreement, whether you have yet to sign it, or you’ve already signed and have been receiving severance pay.
