Severance Payment Plan Can Put Jobless Benefits on Hold

by Don D. Sessions
Employee Rights Attorney
Mission Viejo, California

Originally Published in The Los Angeles Times, November 5, 2001

Q: The company I work for has advised all employees that some of us will be laid of because of a restructuring. The severance package will include one month of pay per year of service to a maximum of 18 months.

We were told we can draw this severance pay all at once or take it on a month to month basis.

How will this affect unemployment benefits? I was told you cannot collect unemployment until the severance pay runs out, even if you take it all at one time.

A: "Because unemployment compensation was created to help replace the wages of people who have lost jobs, you might not be entitled to this compensation while receiving severance pay.

"Some employers even regard the date of your last severance payment as your final day of employment, even though you might have stopped working long before.

"You improve your chances of receiving unemployment compensation sooner if you take the severance pay all at once. Your case would be even stronger if part of the severance amount is for non wage items, such as compensation in exchange for your agreement to waive claims you might have against the company for discrimination or other issues.

"By receiving a lump sum payment, you avoid the possibility that the company might stop payments prematurely because of financial problems. An immediate payment also provides money for your own financial needs, such as investing in further education or a job search.

"There are some advantages to stretching out severance payments, however. Your tax burden might be less if the payments are extended into another tax year. Your health insurance or pension plan contributions also might be continued for the duration of your severance payments.

"You should consult with your attorney before negotiating the terms of any substantial severance pay arrangements, especially if your employer also seeks a release of your rights."

For questions, call (800) 774-7494 or access job-law.com. © Sessions & Kimball LLP.