Company layoffs — what HR won't tell you

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HR is there to protect the company, not you — if you don't know how layoffs work and what protections exist, you're going to leave money — or worse, your rights — on the table.

What to expect if you're laid off

A typical layoff goes something like this:

This can be a sudden, stressful and emotional event — you might not have seen it coming and responding well is key to a good outcome.

How companies choose who to layoff in mass layoffs

In large layoffs (a RIF, or Reduction In Force, in HR parlance), picking who gets laid off is a very involved and legalistic process — the process could take months at larger companies.

The three common strategies: "last in, first out" (most recently hired employees are the first to go), performance reviews or forced rankings.

Before making the decision, companies will often bring in attorneys and conduct a disparate impact analysis (a statistical analysis of whether the RIF would disproportionately affect certain gender, race or age groups).

This process is heavily metrics driven and your manager's opinion of you holds next to no weight, unless it's heavily supported by documentation.

Layoffs are a legal transaction. Do not sign sh*t.

Everyone in the room during a layoff knows your rights better than you do. Do not sign anything on the spot — ever.

Your rights are complex in this situation. You also often have the right to waive your rights — getting you to agree to that is often disguised as a request to sign an exit document.

You may be put under pressure to sign, including being told you cannot leave without signing (false), you won't be paid unless you sign (partially true) and made to feel guilty for not signing. Stand your ground.

Rachel, the final step to us issuing you your last paycheck is for you to sign this exit paperwork.
What's in it?
You're just reaffirming what you signed before in your contract and some additional clauses we ask everyone to sign.
I'd like to review it at home before signing.
You can't leave today without signing this — I can give you some time now to review it.
I'm sorry, I'm not comfortable with this. I will review it on my own time, happy to mail you a signed copy.

This transaction has the potential to have a lasting effect on your life — there's nothing wrong with asking for some extra time.

Use the extra time to carefully read the documentation and, if appropriate, speak to an employment attorney. Most will gladly do a free introductory consultation.

Some of the legal protections you're entitled to

If you’re over 40: the Age Discrimination in Employment Act (ADEA) of 1967 and if you’re part of a group layoff, you’re also protected by the Older Workers Benefit Protection Act. This gives you 21 days to consider any severance offer, and an additional 7 days to revoke your agreement.

If you’re part of a minority group: Title VII of the Civil Rights Act of 1964 prohibits companies from making employment decisions based on race/color, religion, sex, pregnancy or national origin.

If you have a disability: the Americans with Disability Act (ADA) of 1990 prohibits employment discrimination against those with disabilities.

If you experienced retaliation: for example, if you file a harassment claim or whitsleblow and are later laid off. Read up on federal whistleblower laws and consider additional laws in your state.

If you have an ill family member or on a job-protected leave for family or medical reasons.

If you're part of a large layoff at a big company: the Worker Adjustment and Retraining Notification (WARN) Act sets rules for notifying workers about large layoffs and plant closures. You must receive a written notice 60 days before the date of a mass layoff. If not, you may be able to seek damages for back pay and benefits for up to 60 days. In some states like New York, employers have to give 90 days notice.

Look at your final check carefully

When you leave, you'll also receive your final paycheck — this is often a physical check. What exactly is on your final paycheck (and when you receive it) is highly regulated — doing it wrong can mean a large penalty for the company.

Look at the pay deductions in your check carefully: you may pay extra in health benefits if you’re leaving early in the month, but watch out for any other suspicious deductions like negative vacation or sick balances.

Employers are not allowed to withhold your final check from you, even in cases where you have not returned equipment. The company can, however, deduct money from your final check before giving it to you, but only for certain things. Wage deduction laws vary widely by state.

What can be deducted from your paycheck

Your company may only make a deduction that is either:

  • Legally authorized, like meals, housing and transportation, debts owed the employer, garnishment debts owed to the government (such as back taxes and federally-subsidized student loans), child support and alimony.
  • Voluntarily authorized by you, like insurance premiums.

However, your company generally cannot deduct any items considered to be for the benefit or convenience of the employer, if it would cause your salary to be reduced below the minimum wage. Some examples: tools used in your line of work and compensation for damages to company property.

Speak to an attorney if you think your final paycheck was handled incorrectly— even if time has passed, you might have a claim for back wages.

Severance pay — what you should know

Companies sometimes offer severance to terminated employees, which can be anywhere from 1-2 weeks of pay to 8 weeks or more. The amount is generally more for people that have been at the company longer.

There's no legal requirement to provide severance pay, and practices vary widely.

Generally, companies offer severance in exchange for you signing additional legal terms, like agreeing not to sue or to publicly speak about the company. This is important to understand: severance pay is a trade. You're giving up valuable rights and like any trade — it's negotiable.

Severance is most negotiable if you're senior/hold key knowledge about the company and least when you're part of a company-wide layoff or there's a formal written policy on severance.

In addition to asking for more money, you can also try negotiating other privileges:

Keep in mind severance is taxed, just like any other employment income.

What happens after you've left

Protecting your equity

If you're receiving stock options, you'll generally have 90 days to decide whether you want to buy (exercise) the options.

This is a major decision with lots of complicated tax implications. Even if you don't have the cash on hand to exercise, companies like ESO Fund can help loan you money.

In addition, companies may sometimes have a clause that the company can buy back your shares at a fixed price if you choose to exercise.

There's often tens or hundreds of thousands of dollars at stake — you owe it to yourself to speak to an experienced CPA.

Applying for unemployment insurance

Even if you think you might get declined or you don't need the benefit, proof of having applied for unemployment insurance is often needed to get state medical benefits or other benefits.

Transitioning your benefits

There are several things you should know about your benefits as you depart: