Why You Can No Longer Count On Severance Pay If You Are Let Go

There have been many changes in the advertising business over the last twenty years.  One of those changes is the frequency with which agencies fire employees and the amount of severance which is given along with those terminations.

There is no law that requires a company to pay severance if an employee is terminated.  Severance is actually based on an agreement between employer and employee; in the absence of an agreement, payment is purely discretionary on the part of the company.  Contrary to popular belief, there is no rule or regulation that requires severance to be paid to any employee who is terminated, no matter how long they have been with the company. 

Once upon a time in advertising, most agencies adopted a policy of paying a set amount of termination pay.  As I recall, many agencies paid a minimum of one or two week’s salary for anyone being terminated, even if they had been at the company less than a year (unless they were fired for cause).  For longer-term employees the policy at most agencies was anywhere from one or two weeks to a month’s salary for each year of employment.  Many agencies also paid for unused vacation time (based on a year) and some period of healthcare. Today ad agencies fire employees with such frequency that many actually give little or no severance and don’t pay for unused vacation or healthcare. It doesn’t matter how long someone has been employed by the company.  To me this is particularly distressing since many terminations are due to loss of business, which may not be the employee's fault.

I have interviewed people who have been with an ad agency for fifteen or twenty years, who are now late in their careers, who were terminated through no fault of their own (usually because of an account loss). Many receive only a few weeks’ pay, if that. And those loyal and long-term employees are often required to leave the building with little or no notice. There are many reasons why this happens, but one of them is that by having an employee leave immediately, it prevents the departing employee from being able to walk into human resources and demand more departure benefits. Once an employee is out of the office, they have to make an appointment in order to get back in to negotiate.  I have actually heard of companies who have refused that request.  In one case a company made an appointment with a former employee and made him wait in the reception area for over two hours - how humiliating.  This person had worked at the agency for more than a dozen years.

While few agencies offer formal employment contracts even to senior employees, offer letters are binding.  It is important that severance pay be spelled out in an offer letter prior to starting work.  If a company has a termination pay policy (many actually do), that policy should be listed in the offer letter.  Companies frequently change policy, but at a minimum, a candidate should be able to rely on the rules that were in effect at the time of employment.

In most of the United States (except Puerto Rico) nearly all executive employees are “at will” which means they can be terminated for any reason or no reason without repercussions to the employer.

I can think of one agency which does give severance, but requires that departing employees must sign an exit agreement.  That agreement stipulates that if the agreement is discussed with any outside party, including legal counsel and family (!), further payments will be suspended.  This is of dubious legality, since coercion is illegal, but certainly by forcing someone to sign an agreement under threat is intimidating for 90% of people who are fired; most people need (and deserve) the financial cushion.

Some time ago I wrote about the long-term employee who was terminated without the knowledge of her agency president.  She was lucky enough to have a relationship with the president and was able to negotiate a far better exit package directly with him.  This is rare since, in most cases, the manager who fires an employee or the HR person are not empowered to make changes to severance is not compensation.

The best protection any employee can have is to have significant savings since severance is not required and cannot be counted upon. And, in my observation, most of the network owned agencies have very limited payment policies, even for their senior people.