So I was just laid off (don't worry, had an interview lined up before I even got home) and I have had a chance to read my severance package in detail. It's not like packages we got in the 90's or even early 2000's.

My package is X weeks of pay, paid out at the normal intervals they pay out employees and at the end of that time I'm "terminated". During that time I do get full benefits, which is nice. However the severance document (which I had to either sign or not sign right there) states that if at any time during X weeks I take another job I forfeit the remainder of my severance.

Now I've heard this is becoming more and more common. In 2009 I was caught in a layoff and they did 60 days on "payroll" and then X weeks lump sum. If I was rehired by the company in another job in those 60 days I would forfeit my package.

My question is, is this legal?

It seems odd to me. I am pretty sure I didn't sign any exclusivity agreement that said I wouldn't work any other job when I took this job (except for working for direct competitors of course). During my years of employment I've made an extra income as a freelance writer as well.

And what if I was already holding a job? Maybe I was a part time usher at a theater (I'm not, just a what if), would that count as having another job? What if I took a job at Starbucks to make some extra cash? Does that count?

I doesn't seem right, that doesn't mean it's not legal.

So can my old company really stop paying me if I get a new job?

Joel BC

rgosden's picture
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Hi, I see no one has responded to your question.....

I am in no way qualified to provide an answer, however, the Evil HR Lady likely can do so:

You can probably fish through the post history there and find a relevant answer.


jbancroftconnors's picture

Thank you, I'll check that out. I also found a law on the books that seems on the face of it to conflict. 791.2 Joint employment.

I've sought professional legal advice and will let you know what I find out. 


Joel BC

cynaus's picture
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Hi Joel - sorry to hear you were laid off. I hope you find something soon and how refreshing to read that you had an interview lined up before you got home!

I can't speak for the legal system outside Australia, and even here we have slight variances depending on whether it's private sector or government, minimum award entitlements and industrial instruments such as Enterprise Agreements. Also redundancies and retrenchments occur in various forms which allows for varying requirements.

Generally though if an employee leaves during their notice period, they forfeit the notice payments but still receive the severance (redundancy) payment that they would have been entitled to had they stayed till their last working day.

Let us know how you go.



rhsanborn's picture

I didn't see a location, but I assume you're in the USA. Employment law varies significantly from state to state. On the face of it, you essentially signed that non-compete style clause when you signed the paperwork. Your state may have rules restricting this, they may also have rules about signing under some sort of duress. Your best bet is to consult a lawyer who is experienced with employment law in your state. They will likely be able to tell you point blank if its something worth pursuing, so it shouldn't cost you more than an hour or two.




KateM's picture
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Disclosure: I am familiar with unemployment law in the Southeastern US.

If you think of severance pay as privately-managed unemployment insurance, then this makes sense.  Many firms give you a severance package in lieu of you filing unemployment and increasing their unemployment premiums.  This is perfectly legitimate (and indeed, most ex-employees find this preferable, since the severance package has to be better financially than what you'd pick up from the unemployment office, and there are lots of hoops to jump through to collect unemployment.)

The company doesn't see severance as a parting bonus -- it sees it as a way to tide you over financially until you get another job.  Just like unemployment.  And once you get another job, earning approximately what you made at your previous job, you're not eligible for unemployment anymore.

Your point about "but what KIND of job" is well taken.  There is such a thing as partial unemployment, i.e. a manager making a healthy salary is laid off unexpectedly and takes a much-less-remunerative temp job as a barista or usher, to feed his family.  In many states, one would continue to collect unemployment but the amount would be adjusted to reflect the income from the temp job.  You could make a legal argument that the same holds true for your severance package.  (Logically, though, if your severance package is decent, it doesn't make sense to be a barista for 6 weeks collecting 25% of your former salary and collecting 75% of your severance package.)


BariTony's picture

to what I was in back in 2008. I was laid off, but we were told that we were on payroll for 60 days with full benefits, plus health insurance for another 4 weeks, then we collected severance as a lump sum. The reason was that the state law required 60 days notice to employees in the event of a 'mass layoff', which was defined as 33% of the workforce. Technically, we were employed for those 60 days, hence the regular paycheck and benefits. The reason that the health insurance lasted for four more weeks was that the monthly premium was paid at the beginning of each month, so the employer wasn't being nice - they were cutting benefits ASAP. It was made quite clear that we were not unemployed and could not seek employment benefits during the 60 day period. In your case, it sounds like your employer is doing something similar, but since you're technically still employed, if you take another job during that 60 day period, you technically aren't being laid off - the company gave you notice and you took another job. From their point of view, and the government's point of view, this is ideally how it's supposed to work.

tokyotony's picture

Why do companies offer severance packages in the first place? I see that is helps on the unemployment premiums. Anything else?

KateM's picture
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Recruitment: if you're in a particularly volatile industry and are considering multiple job offers, a company that has a history of generous severance packages looks more appealing than one that has a history of letting you go with no financial support.

Retention: let's say you're in a company that's completed round 1 of layoffs, and there are likely to be more.  You survived round 1 and still have a job.  Should you jump ship now or try to hang on?  If you know that your colleagues that were cut in round 1 got no severance package, you're going to leave before you get cut in round 2 or 3.  On the other hand, if you see that the laid-off employees got nice packages, you're likelier to stick around.

cynaus's picture
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@tokyotony - We have minimum requirements for severance payments according to awards and I suspect was put there to fairly compensate the employee who genuinely no longer has a job due to structural or financial changes (or other genuine reasons).  

These minimum requirements must be met (amongst others) to protect an employer against an unfair dismissal claim from an employee. An employee can claim they were unfairly dismissed during a redundancy (and subsequent retrenchment), if the redundancy was not genuine and/or if the process was not fair and reasonable.

tokyotony's picture

Kate/Cynaus - Thanks for the reply.

Are severance packages also given is the employee is let go for poor performance?