What Are Your Rights If Laid Off? Severance, WARN Act, and Unemployment

Layoff vs. Termination: An Important Distinction

A layoff occurs when an employer eliminates a position or reduces headcount for business reasons — economic downturns, restructuring, automation, or strategic changes — rather than for any fault of the individual employee. This distinction from a termination for cause matters for several practical purposes: unemployment eligibility, potential severance, and the absence of stigma that sometimes attaches to a for-cause firing.

A layoff does not necessarily mean your rights are limited. In certain circumstances, the layoff itself may be illegal — for example, if the employer selects employees for layoff based on protected characteristics (age, race, sex), or if the layoff is a pretext to retaliate against an employee who engaged in protected activity. A disparate impact analysis — examining whether the layoff disproportionately affected a protected class — is sometimes the basis for discrimination challenges even when no individual discriminatory intent is shown.

The WARN Act: When Advance Notice Is Required

The Worker Adjustment and Retraining Notification (WARN) Act requires certain large employers to provide 60 days advance written notice before a mass layoff or plant closing. The WARN Act applies when:

• The employer has 100 or more employees (excluding part-time workers who work fewer than 20 hours per week or have less than 6 months of employment).
• The action constitutes a plant closing (shutdown affecting 50+ employees) or a mass layoff (affecting either 500+ employees or 50–499 employees if that number constitutes at least 33% of the workforce) at a single site of employment.

Notice must be given to: the affected employees, the state dislocated worker unit, and the chief elected official of the local government where the layoff will occur. Employers who fail to comply with WARN Act requirements are liable for up to 60 days of back pay and benefits for each affected employee, plus civil penalties payable to local governments.

WARN Act Exceptions

The WARN Act contains three exceptions that excuse the 60-day notice requirement:

• Faltering company exception: The employer was actively seeking capital or business that would have avoided the layoff, and advance notice would have prevented securing that capital.
• Unforeseeable business circumstances: The layoff was caused by business circumstances that were not reasonably foreseeable at the time notice would have been required (such as a sudden loss of a major contract or a rapid, unexpected business downturn).
• Natural disaster: The layoff was a direct result of a natural disaster.

Even when exceptions apply, employers must provide as much notice as practicable. These exceptions were actively litigated during the COVID-19 pandemic, with courts generally finding that the pandemic itself could constitute unforeseeable business circumstances for layoffs occurring in spring 2020.

Severance Pay: Rights and Negotiations

Many employees are surprised to learn that the FLSA and federal law generally do not require severance pay. Unless severance is specified in an employment contract, union agreement, or company policy, most employers have no legal obligation to offer it. However, when severance is offered, important legal considerations arise.

Employers almost always condition severance on the employee signing a separation agreement, which includes a release of all employment claims. By accepting severance, you agree not to sue for wrongful termination, discrimination, or other employment-related claims. This makes evaluating a severance offer critical — you may be releasing valuable legal rights.

Key points for evaluating a severance offer:

• You have time to consider: Federal law gives employees over 40 at least 21 days to consider a separation agreement and 7 days to revoke after signing. For group layoffs, the review period extends to 45 days.
• Review for non-compete provisions: Many separation agreements include or reinforce non-compete clauses. Know what restrictions you are agreeing to before signing.
• Severance is negotiable: Even if the employer presents the offer as standard, the amount, benefits continuation, equity vesting, and job reference terms are often negotiable — particularly if you have leverage (strong performance record, potential legal claims, or specialized knowledge).
• Consult an attorney: If you have any reason to suspect the layoff was discriminatory or retaliatory, consult an employment attorney before signing anything.

Unemployment Insurance: Eligibility and Filing

Unemployment insurance (UI) is a state-administered program, jointly funded by federal and state payroll taxes on employers, that provides temporary income replacement to workers who lose their jobs through no fault of their own. A layoff clearly qualifies. Being fired for cause may or may not qualify depending on the state and the severity of the misconduct; quitting voluntarily generally does not qualify unless the resignation was for good cause attributable to the employer.

File for unemployment benefits as soon as possible after your layoff — there is typically a waiting week before benefits begin, and delays in filing delay the start of that waiting period. File through your state's unemployment agency website. You will need your Social Security number, employment history for the past 18 months, and information about your last employer.

Benefit Amounts and Duration

Unemployment benefit amounts vary significantly by state. They are typically calculated as a percentage of your prior weekly wage, with state-set minimums and maximums. Most states replace 40–50% of prior wages, up to a cap that ranges from roughly $275 to $1,015 per week depending on the state. Benefits are generally available for up to 26 weeks under regular state programs, though federal extensions have been available during recessions.

Unemployment benefits are taxable income at the federal level (and in most states). You can request voluntary tax withholding from your unemployment payments to avoid a surprise tax bill at filing. Benefits may be reduced or denied if you receive severance pay simultaneously — rules vary by state on how severance is treated.

COBRA Health Insurance Continuation

Losing employer-sponsored health insurance is often the most urgent practical concern after a layoff. The Consolidated Omnibus Budget Reconciliation Act (COBRA) requires employers with 20 or more employees to offer continuation of group health coverage for up to 18 months (36 months in some circumstances). You pay the full cost of the premium — both your former contribution and the employer's share — plus a 2% administrative fee, which makes COBRA expensive but provides important bridge coverage while you find new insurance.

A job loss is also a qualifying life event for enrolling in marketplace coverage through Healthcare.gov during a Special Enrollment Period outside the normal open enrollment window. Depending on your income during unemployment, you may qualify for significant ACA subsidies that make marketplace coverage cheaper than COBRA.