Q: If an individual who is entitled to severance pay later accepts a new position with another company, is he or she still eligible for severance pay? Or is the severance pay terminated?
A: The purpose of severance pay is to provide a terminated employee with some continuation of income after the employee is no longer employed. In Massachusetts, employers are not required to provide severance pay to most terminated employees. There are some exceptions however. Being a member of a union and/or having an employment agreement with a severance clause are two examples of situations where severance payments may be required. Another reason why employers offer a terminated employee severance pay is to limit the company’s liability. Additionally, an employer might request that the employee leave the company in a professional manner and refrain from speaking negatively about the company. Often severance pay is given only if the exiting employee signs an agreement where the employee agrees not to sue their former employer.
Most employers determine their own severance policy. Policies can vary widely. Severance often varies depending upon the employee’s level within the company and their length of service with the company. Other factors can also be taken into consideration as well.
Some companies offer severance payments for a specific length of time. An example may be 12 weeks of severance. Another company might offer 8 weeks of severance and then if the former employee lands a comparable job during that severance period, the individual can collect the remaining weeks at 50% but in a lump sum payment.
In short, an individual must review the severance and/or separation agreement that was likely signed prior to leaving the the employer. This agreement should provide detail on the specifics of the “terms and conditions” of receiving severance. If in doubt, you could contact your former employer.
In my experience, most companies would terminate the severance pay if the terminated individual began a new role that was comparable to the former role that they held. However, some companies do offer the 50% lump sum payment too.
Over the past few years, there has been a bit of discussion with respect to severance and what constitutes a “comparable role.” In particular, what if the new role is a part-time position? Or a consulting role? Or a temporary role? Is that a comparable position to the full-time position that the employee had prior to being terminated? It is best to clarify how a comparable role is defined before signing any agreement.