Understanding Unemployment Benefits & Severance Agreements in New Jersey
Severance Agreements & Unemployment Law in New Jersey
In New Jersey, employees who are eligible to receive severance pay as part of their Severance Agreement may also apply for State unemployment compensation benefits. Severance will be deemed the employer’s recognition of your past service (akin to a sign-off bonus) and will not affect your eligibility for unemployment insurance.
What Is Severance and How Is It Paid?
Severance is the amount your employer agrees to pay you, based on a contractual obligation or an employer’s stated policy, including a Handbook policy. It can vary greatly from employer to employer. Some offer one or two weeks of salary. Others use a formula to calculate this amount that would generally include your current rate of pay and number of years of service. Severance may be paid weekly, biweekly, monthly, or in a lump sum. It sometimes starts out as a periodic payment, but accelerates upon your obtaining another job. Some employers curtail severance pay entirely when you get a new job. Others do not care.
Will My Severance Agreement Affect my Unemployment Payments?
If your employment is still considered active, unemployment benefits may not be available for you until the severance ends. For example, if the company pays severance that keeps you “on call”, with specified job duties, and legally on the company’s payroll for an additional six pay periods, even if you mostly are a “no show”, then you will not be able to apply for unemployment benefits until your severance pay runs out.
For this reason, you should suggest that your severance be paid in a lump sum as soon as your employment ends, or be paid out over time, but not because you continue to be an active or “on call” employee.
Before You Sign
Before you sign a Severance Agreement, you need to pay close attention to its details. Although the Severance Agreement may offer you a kindly sum of money, you must realize that it doesn’t come for free. Your Severance Agreement will almost certainly stipulate that you:
- Shall not sue your employer for any past acts, no matter how egregious;
- Shall not compete with the employer for a given period of time and geographic scope;
- Shall not encourage other employees to leave;
- Shall not encourage customers or vendors or others to cease doing business with the employer or start doing business with you and/or a new employer;
- Shall not reveal the terms of your Severance Agreement to anyone who does not have a need to know;
- Shall not disparage the employer orally or in writing to anyone else;
- Shall pay a stated financial penalty if you violate any of those conditions; and
- May require that you give up other rights.
You may decline a Severance Agreement if you have a valid legal claim against the employer that is worth more than the employer is willing to pay you for your law suit waiver and silence.
Is My Severance Agreement Negotiable?
When it comes to Severance Agreements, negotiation is almost always an option, especially if you aren’t satisfied with the amount your employer is offering or the terms and conditions stipulated. Maybe you were an excellent employee with a history of long service, or you were expecting to receive a pay raise or promotion before you got laid off. Maybe you have an excellent legal claim, and should be treated differently than someone else with the same job title and years of service. As so many of us teach our children, it never hurts to ask. You should keep that mindset in the forefront as you approach this important transition. Your employer may be just as nervous about the damage/negativity your leaving could cause them as you are about leaving your employer and starting something new.
Will My Ability to Work Be Restricted by My Severance Agreement?
The Severance Agreement may restrict your ability to work for another employer. Non-compete or non-competition restrictions are common in Severance Agreements. Generally, the employer will seek to stop you from working for a business or company that would be considered a direct competitor. The Agreement may also state you cannot open your own business, if you will be direct competition. You will be asked not to give away any of your employer’s industry secrets or other confidential information, like customer lists or recipes or intellectual property.
Before you sign any agreement, make certain to negotiate, curtail, and clarify any restrictions or guidelines on your ability to work in the same industry or for another employer. For example, you can negotiate in writing that the employer must state in advance who all the competitors are for which they seek your non-employment for the time stated, and shall reasonably consider your requests for waivers, depending upon your actual job responsibilities when a new job is offered to you.
Is My Employer Required to Offer Me Severance?
Your employer is not required, by law, to offer you a severance package. Many employers do so as an act of good faith to show appreciation for your work or to discourage litigation against them. This can help you to transition to new employment. Bear in mind that the employer’s goal for a Severance Agreement is to create separation from you as quickly, quietly, and conclusively as possible, and at the least cost to them.
Conclusion
In New Jersey, a Severance Agreement most often will have no impact on your right to receive unemployment benefits. Consult with a trusted employment law firm for workers regarding any questions you may have about state laws and the draft Severance Agreement, which almost universally is created in the first instance by the employer’s legal counsel.
In particular, learn how much you may be giving up before you sign, including possible legal claims against the employer for age, gender, disability, race, religion, whistleblowing, or other forms of discrimination and retaliation; ask your lawyers for advice about the areas in which the employer is likely to concede; ask for points to include that may benefit you, such as a guaranteed neutral reference, and a release running in your favor just as you are releasing the employer for past acts; and consider whether your lawyer should conduct part or all of the negotiations on your behalf, especially if you are feeling beaten down, depressed, or humiliated for any reason.
Our office will be pleased to work with you as your coach, consultant, advisor, negotiations advocate, or, in some cases, as your legal and trial counsel – if the facts and proofs of employer wrongdoing work strongly in your favor and your employer (or former employer) refuses to yield. Please write or call us. Let’s begin with a conversation. You will be happy that you did.