Sometimes, employers need to reduce the number of employees in a company. An employer may need to terminate an employee’s employment for reasons unrelated to the employee’s performance. Often, employers need to do this for economic reasons to cut costs. This is known as a layoff. Severance pay is a way for an employer to cushion the blow of a layoff and provide a laid-off employee with a measure of financial security. Before 2023, no state or federal law required employers to offer severance pay to former employees. In April 2023, New Jersey became the first state in the U.S. to require employers to pay severance pay to individuals terminated in mass layoffs. This is after S-3170 was enacted. The NJ severance pay law covers employers with at least 100 full-time employees who have been in business for three years or more. The law applies when a layoff puts 50 people or more out of a job.
If an employer offers you a severance package after they lay you off, you might feel good. However, if the reason for your being laid off is unclear, you might want to consider the possibility that the severance pay offer is a cover-up. If you do not know why you are being laid off and receive a severance package offer, it could be a sign that the employer is concerned about a lawsuit and wants to unofficially “settle” any legal claim they think might be filed against them.
So, when should you be concerned that severance pay may be a cover-up or, in other words, a way for an employer to avoid compensating former employees in the future when legal issues arise? You should be concerned if, among other things,
Most of the People Who Were Laid Off are Members of a Protected Class
For example, if most or all of the people who have been terminated fall within a particular age group, it could be possible that the employer laid you off because of your age. Did the employer lay off older people, leaving behind younger people or vice versa? If yes, the severance package offer you received could be a cover-up.
You Were Sexually Harassed on the Job
Suppose you were sexually harassed by your employer, supervisor, or co-worker and are being let go on the grounds of a layoff with a generous severance package. In that case, you may have a reason to be concerned. It could be that the employer is worried that you might file a sexual harassment claim against them, and they want to protect themselves.
You Were a Whistleblower
If you reported illegal or unethical behavior within the company and have been let go on the grounds of a layoff with a generous severance package, it could be that the employer is retaliating against you. The generous severance package could be an attempt to avoid the legal consequences of whistleblower retaliation. It is against the law for an employer to retaliate against you for being a whistleblower.