Employees started to receive smaller severance packages toward the end of the Great Recession and had fewer opportunities to negotiate better terms. Some employers had to shave or eliminate severance packages to save money and avoid bankruptcy filings. Some employers had to make quick decisions about layoffs leaving jobless workers with little notice and no severance package. This led angered workers to sue.
Even a state government attempted to cut severance pay. In Idaho a proposal to stop the state from using “funds to pay any sort of severance packages to any state employees, with the exception of those employees of higher education institutions in Idaho,” was supported by both the House and Senate, according to IdahoReporter.com.
A Bankrupt Business
A firm unable to pay its debts can file bankruptcy. This complex process allows the business to pay back creditors through an organized manner under the watchful eye of the U.S. government. Companies, realizing they have no future, may file a Chapter 7 liquidation bankruptcy and those that believe they can overcome their financial difficulties and stay open throughout the bankruptcy file a Chapter 11 reorganization bankruptcy.
In many situations an employer’s bankruptcy may eliminate or delay severance payments. The employee is considered another creditor, and the claim for payment is considered unsecured. Unsecured creditors are usually last to get paid. For instance, Former Lehman Brothers employees learned their severance payments would be cut off because of the firm’s Chapter 11 filing.
Other companies tried non-traditional alternatives. The media company Gannett tried supplemental unemployment benefits during the Great Recession. This allowed it to share part of the cost of severance pay with the states. This wasn’t a win-win situation for employees, according to the New York Times report,”As It Cuts Jobs, Gannett Also Cuts Severance Pay.” Some former workers ended up with less.
Despite the challenges that may arise, employees can still negotiate a severance package. Employment lawyer David Cashdan advised in the New York Times article “Employers Cut Back on Aid to Laid-Off Workers,” workers can ask for more flexibility choosing an outplacement services firm, a guarantee of placement on the rehire list, a recommendation and assurance nothing negative will be said to prospective employers.
Receiving a severance package is not a guarantee. However, severance agreements have become a common practice with midsized and large companies. Smaller organizations may or may not mention the agreement in the labor contract, so make sure to check. These packages attempt to preserve goodwill and ward off lawsuits. The cash payments have often offered one or two weeks’ pay for each year an employee worked.