Laid Off Employees: What Compensation is Available?

If you lose your job in a layoff, you may be entitled to severance, unemployment benefits, or other forms of compensation.

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During these tough economic times, plenty of employees worry about losing their jobs -- and their income -- in a layoff. It's a frightening prospect to be without a paycheck, even for a short period of time. But there are some forms of compensation that may be available to laid-off employees. 

Option 1: Money Your Employer Owes You

The first place to look for compensation is money you have already earned. For example, you are entitled to receive your final paycheck, compensating you for all of your hours worked, in fairly short order after a layoff. (For state-by-state information, see Nolo's Chart: Final Paychecks for Departing Employees.) In many states, employers also have to cash out any accrued, unused vacation time when you lose your job. If there are other amounts you've earned but not been paid -- for example, commissions -- you are entitled to that money, too. And don't forget expense reimbursements you are owed.

Option 2: Severance

There are two ways a laid-off worker might be entitled to severance: state law might require it, or the employer's policies or practices might provide for it. 

State laws requiring severance. In a handful of states, an employer that conducts certain types of layoffs is required to pay a small amount of severance and/or pay to continue employee health benefits for a period of time. These laws are similar to the federal WARN Act, which requires employers who lay off a large number of workers or close an entire plant to give the affected employees a certain amount of advance notice. In some states, the laws go further to require employers to provide some severance pay. In Maine, for example, employers who discontinue business operations or relocate at least 100 miles away must pay laid-off employees who have been with the company for at least three years one week of severance pay for each year of work. Very few states have this types of requirement; to find out if yours is one of them, contact your state's labor department. 

Employer severance policies. If your employer has a policy promising severance or a practice of offering it, you are entitled to severance pay. For example, many companies routinely pay employees who are laid off one week of pay for each year of service with the company. Companies that put this practice in writing (for example, by promising it in an employment contract or by adopting a written severance policy) can be held to it. Even companies that have no written severance policies may be legally required to provide it, if they have always paid severance to laid-off employees in the past. At some point, a regular practice like this becomes a type of contract, which the company can be held to. 

Option 3: Unemployment Benefits

If you lose your job through no fault of your own, you will likely be entitled to unemployment benefits while you look for new work. Unemployment insurance is a joint program of the federal and state governments. Although each state has its own eligibility requirements, generally workers are eligible if:

  • they have worked a minimum amount of time, earned a minimum amount, or both (depending on the state's rules) before applying for benefits
  • they are out of work through no fault of their own (employees who are laid off for financial reasons meet this requirement), and
  • they are able, available, and actively looking for work. (For more on all of these requirements, see Eligibility for Benefits.)

The amount of benefits varies widely from state to state, but it always depends on your prior earnings. Unemployment benefits are intended as a partial wage replacement: Theoretically, they pay employees enough to get by without creating a disincentive for employees to find new work. (Undoubtedly, plenty of employees would dispute whether unemployment really pays enough to live on; to find out more about how much you'll get, see Amount and Duration of Benefits.)

If you are laid off, you should file a claim for unemployment right away. Many states impose a waiting period, so you'll want to get the ball rolling as quickly as possible. To find out how to file a claim, go to your state's unemployment agency website; you can find links and more information at State Unemployment Agencies

Option 4: Workers' Compensation

Workers' comp isn't a form of severance pay, but you may be entitled to receive it even after you are laid off. Workers' comp is a form of insurance that most employers are required to carry. Employees who suffer work-related injuries or illnesses are entitled to certain benefits through workers' comp, including medical expenses, partial income replacement, and perhaps vocational rehabilitation benefits. If you are out on workers' comp leave when you are laid off, you may be entitled to continue your benefits until you are released to work, even though your former employer won't be able to rehire you when that happens. 

If you lose your job while on workers' compensation, pay close attention to the situation. It's perfectly legal for an employer to lay off an employee who has an active workers' comp claim, as long as the layoff isn't related to the claim. For example, if your employer lays off your whole department or closes the facility where you worked, it doesn't have to make a special arrangement to protect your job just because you're on workers' comp. However, an employer may not lay off or fire an employee because of that employee's workers' comp claim. For example, if you are the only one who loses your job, and your employer has indicated that it's because of your injury, calling your termination a "layoff" won't protect the employer from liability. If you are in this situation, speak to an experienced workers' comp lawyer right away. 

Option 5:  Legal Remedies

Not every layoff is legal. You may have grounds for a lawsuit if, for example, you lost your job due to discrimination or retaliation. For instance, if your employer conducted a layoff in which it terminated mostly older workers, that might be age discrimination. 

Even if your layoff is legal, you may have legal claims against your employer that predate your termination. For example, perhaps your employer owes you unpaid commissions or never paid you for working off the clock. If you want to pursue potential legal claims against a former employer, you should speak to an employment lawyer. 

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