Even in one of the best job markets, employees will still face termination and the difficult decision on how to move forward. That means tens of thousands of U.S. workers must determine whether to wait for severance or take new job.
Each year, companies close, cut their workforce and restructure, all actions that can leave workers searching for new jobs. But in today’s job market, companies are also competing fiercely for talent. There are more job openings now than before the global pandemic, a result of employers filling more positions and fewer workers looking for jobs, according to Bloomberg.
“People actually have a lot of money and they don’t particularly feel like going back to work,” JP Morgan Chase CEO Jamie Dimon told a U.S. House committee in May 2021.
That means that workers who lose their jobs in company closings and cutbacks have a better chance of finding employment in 2022. This also leads to a difficult decision for many workers who receive a severance package when they lose their jobs. Do you wait for severance to run out before taking that new job? Let’s consider the possibilities.
Terminations and layoffs in a hot job market
In 2021, U.S. businesses that were forced to close and cutback in response to the global pandemic began ramping up operations. The mass reopening led to a hiring spree after many workers left their jobs for better ones or lost them. The U.S. unemployment rate began falling fast, dipping to 4% in January 2022 and approaching pre-pandemic levels, according to the U.S. Bureau of Labor Statistics.
But even in a hot job market, U.S. companies announced nearly 322,000 job cuts in 2021, according to career transition firm Challenger, Gray and Christmas, Inc. That means hundreds of thousands of U.S. workers lost their jobs due to company closings, restructuring and market conditions.
Many of those terminated workers became eligible for severance packages. Companies are not legally required to provide severance pay to employees they must layoff, but many do. In some cases, employees receive weeks or months of pay when the company terminates them to help transition into a new job.
But many severance packages come with a provision that ends any ongoing payments after termination if the former employee starts a new job. Some severance packages provide ongoing pay after termination for up to a year for long-serving employees who are terminated. That means that the generous severance package some terminated workers received could be lost when they start a new job.
Should I wait for severance or take new job?
The question of whether to wait for severance or take a new job is more relevant in a hot employment market. Workers terminated through no fault of their own may have to decide when to start looking for a new job. If they received a severance package, it likely included a combination of ongoing pay and benefits, such as health care coverage.
The first thing you want to determine is whether your severance package came with strings attached. For example, some companies will make a one-time bulk payment to a terminated employee and offer health benefits for a brief period. That severance package may not prohibit a terminated worker from getting a new job.
Stock options or payouts, for example, are another benefit that some employees receive at termination. It is not likely that those benefits in a severance package would be impacted by starting a new job. But ongoing pay is something that could be lost if a terminated worker starts collecting another paycheck.
Do you lose severance if you get a new job?
That is why it is important to review the small print of your severance package. When companies provide severance to terminated employees, they typically provide written conditions that must be met. These conditions outline in a severance agreement what terminated employees must do to receive benefits.
The severance agreement should explain the conditions that would end the benefits provided. For example, if an employer continues to pay the terminated worker through a normal payroll schedule, the severance agreement will state when those payments stop. Review the agreement carefully to determine if finding a new job ends the payments.
It may seem unfair that a company would stop making severance payments if you receive a new job. But from the company’s perspective, your continued payments mean you are still treated as an employee. Benefits continue, taxes are withheld and the company pays its share of your Social Security.
When you receive severance payments while not technically working, you remain on the company’s payroll. If you start a new job, that is now the responsibility of your new employer. So, your former employer no longer sees any reason to continue your severance payments.
Is it possible to start a new job and receive severance?
There are some situations that allow you to start a new job and receive severance benefits. In some cases, severance payments continue if a terminated worker takes a job that pays less than his previous one. The severance payment continues to make up any difference in pay through the specified severance period.
For example, a company that is downsizing terminates a worker who earns $4,000 a month. The company provides a severance agreement that includes full pay for a year or until the worker starts a new job. The agreement also states that the severance payments will also make up any difference in pay if the worker cannot find a job at the same salary.
The idea here is to help the terminated worker maintain their salary for up to a year. If the worker cannot find a job that pays as well or better, the severance package makes up the difference.
This type of allowance, while not common, would be documented in the severance agreement.
What should I do?
It is important to thoroughly understand the severance agreement you received from your employer upon termination. It may be necessary to ask an employment lawyer to review it for you. There may be conditions under which you can receive your full severance and accept a new job.
For example, determine if your severance agreement prohibits you from accepting a new job or starting a new job. Here is why that matters.
A severance agreement might specify that ongoing payroll payments and benefits stop when you start a new job. If that is true, then you may be able to negotiate a start date for your new job that allows you to delay work and continue receiving severance pay. It is the same as searching for a new job while still employed and negotiating a delayed start date to help your employer find your replacement.
Even in a situation where your severance agreement may not prohibit you from taking a new job, you may be concerned that you should not keep accepting severance payments for ethical reasons. There is no ethical obligation to tell your former employer you started a job or to return payments if your severance agreement does not prohibit it.
What if I don’t tell my former employer I started a job?
Just as your severance agreement outlines the conditions to receive benefits after termination, it also spells out what happens if you break the agreement. Some severance agreements allow former employers to force terminated workers to repay benefits if they violate the terms.
It may be cheaper to pay a lawyer to advise you about your severance package than to hire one to defend a lawsuit. A lawyer can ensure that you follow the conditions in your severance agreement. They may also be able to identify options in the agreement that you did not recognize.
For example, your severance agreement may state that only your health care benefits will end if you start a new job. In that case, you may be able to keep any payroll payments you received, but switch your health care to your new employer. Just make sure you fully understand all the conditions of your severance agreement.
It is never a good idea to start a new job with a cloud hanging over your head. The last thing you want to do is explain to your new employer that your old employer sued you because you violated a severance agreement.
It is painful and difficult to lose a job. That’s why a severance package can be so helpful during that difficult time. Even though you suffered through a trying experience when you lost your job, do not violate your severance agreement.