Employers Cut Back on Aid to Laid-Off Workers

Wall Street Journal - Anna Prior
August 9, 2009

As companies continue to lay off workers, here’s another reason for people to worry about joining the ranks of the unemployed: They may find a smaller severance package than they expect.

The unemployment rate fell to 9.4% last month, but 247,000 jobs were still lost in that period. And the more people laid off by companies, the larger the chunk of change being paid out in the form of severance pay, continued health benefits, retraining and other services. So companies are beginning to put such payments under the microscope.

Smaller severance packages will add to the financial strain of laid-off workers. And state unemployment benefits only get you so far. People who have been jobless for an extended period — a max of as many as 79 weeks in some states — will soon face the end of their state benefits.

“There is less money on the table and people are essentially doing the least that they have to do in terms of taking care of exiting employees,” says Wendi Lazar, an employment lawyer and partner at Outten & Golden in New York. “We used to see benefits where companies would pay for [the continuation of health coverage at group rates under] Cobra or give the employee six months to a year of health care, and we aren’t seeing that anymore.”

Separate surveys of several hundred companies, conducted within the past few months by consulting firms Mercer and Hewitt Associates, show that many employers say they don’t plan to modify severance policies, if they have one.

Still, consultants and employment lawyers say anecdotal evidence suggests that some cuts in severance packages should be expected and negotiating better terms is becoming harder to do.

Meantime, a few companies have turned to more fundamental changes in the way they compensate laid-off employees. Media company Gannett, for instance, is now offering supplemental unemployment benefit plans, which allow the company to share part of the cost of severance pay with the states.

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In the past, a rank-and-file employee could expect employers to be open to negotiating higher severance pay, extended health benefits or compensation for unused vacation days. “An employer would be open to trying to make it a palatable and amiable exit,” Ms. Lazar says.

But now, she says, “a lot of companies are taking a hard line.” They say, “this is the package — take it or leave it.”

Still, negotiating isn’t a complete waste of time. If you are leaving a senior-level post, you could have some leeway, especially if you’re asked, as a condition of the package, to sign a noncompetition agreement or nondisparagement clause.

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Some examples: flexibility in choosing an outplacement services firm, assurance that a person will be placed on a rehire list, a letter of recommendation and assurance that nothing negative will be said about the person to a prospective employer.

And if such things don’t cost the company a lot of money, that’s another plus.

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Also, Ms. Lazar recommends having a lawyer look at the package to ensure you aren’t waiving any rights that could make it difficult for you to find another job or prevent you from suing the company for an existing claim.