What are the downsides of getting fired with severance instead of quitting?

Question

I've been at my company for several years, and lately I've grown frustrated and increasingly stressed out due to changes at the company. The quality and quantity of my work has plummeted over the last year, and ultimately I've decided to quit my job. I met with my manager and offered my resignation.

He spoke with HR, and they told him that I have two options:

1. If I quit, there is no severance package, and my health insurance ends immediately.
2. However, they said they could instead fire me, and I would receive 10 weeks of pay, an extra month of company paid health insurance, and the option to continue on the company health insurance (though I pay for it).

At face value, it seems like there's a very significant advantage to being terminated, instead of me resigning. This seems counter-intuitive to me. Either way, I'm effectively leaving the company on good terms, so why would the company only offer these benefits if I am formally fired? Doesn't this add additional costs to the company, such as having to cover unemployment claims if I were to seek unemployment benefits?

What are the potential ramifications to me if I decide to take their offer of being terminated? (I'm in the United States.) My manager has agreed to write me a letter stating that the decision to leave was a mutual one, so I would have documentation if a future company inquired with my current company if I was terminated.

Answer 1

What are the potential ramifications to me if I decide to take their offer of being terminated?

Seems like your company is being very nice. I see no significant downside to taking the offer of severance.

You will have to indicate you were fired, if asked during an interview. But you could also explain the offer you took.

Make sure you are fully prepared to explain why you were ready to quit without having a new job lined up first. Sometimes that is important to a hiring manager. Make sure you can explain how, though your decision to be terminated was a mutual one, you will be a better long-term fit in the new company. Explain how you won't get frustrated and stressed and quit the new job.

Assuming you serve out a notice period, make sure you do so while working very hard and remaining very professional. A letter from your manager is interesting, but you don't really know what will be said during a reference check phone call. You want to leave on the best possible terms.

Answer 2

Initially, I added this as a comment, but I think that it warrants a full answer.

The company is offering you 2 and a half months of pay, plus a month of health insurance. This means that they're also paying all the associated costs and taxes that you don't see. (The offer to stay on company insurance is bogus as COBRA takes care of this).

In return, they are asking you to let them fire you, presumably "with cause".

Thus, they are offering a lot of money to someone who is intending to leave, just so that they can call it a dismissal rather than a resignation.

Regardless of how "kind" a company is, this goes beyond kindness. There's a motivation here.

It may have nothing to do with you. For instance, they could be planning a big layoff that would fall under the WARN Act. Getting rid of employees through dismissal might help them avoid this.

There could be some internal politics or numbers that they are seeking to tweak to keep their voluntary attrition down.

It might have something to do with you. Maybe you forgot that you have a bonus or options or some other clause that would provide you with money unless you are fired.

Perhaps they are going to use this offer as leverage to get you to sign a non-compete or non-disclosure agreement.

I'd look very hard at what the consequences of letting them fire you are before you agree to anything.

This is not a free lunch.

Answer 3

In the US, this is generally just a sweet deal.

You get a very nice cushion of severance, and some medical insurance paid for and then defrayed cost after that (COBRA rates are always higher). Fired (not for cause) is much better in most states for unemployment claims than quit, as well. If they do give you a letter about "mutual separation" then you're golden.

Though you are suspicious of this kindness, the things they could want are mostly harmless.

• They may just be thankful for your work and want you to return to the industry workforce with a good impression of them (yes, this happens. My company just recently has let people go with way more severance than is necessary because we try to do right by people.)
• They may get a longer notice period (you don't specify)
• They may want a NDA/noncompete/non-disparagement signed (well worth it for this amount of $ IMO)
• They may want their internal stats to look better (why do you care?)

The only possible down side is if you have some contract (unlikely in the US) or equity (more likely) that means you forfeit something if you are fired, though you don't mention anything of the sort.

This happens, and it's a good deal compared to "I just quit" or, worse, "I just got fired with zero severance," which is well within their rights in most places and situations in the US. Don't let conspiracy theories talk you out of money equal to 3 months of salary.

Answer 4

I've been at my company for several years, and lately I've grown frustrated and increasingly stressed out due to changes at the company. The quality and quantity of my work has plummeted over the last year, and ultimately I've decided to quit my job.

When you talked to your manager and/or HR, did you tell them specifically that your stress and frustration was caused by actions taken by the company? If so, that could explain their offer. Severance packages frequently come with a release where both sides certify that they have no remaining claims or legal issues against the other. By offering you a severance package, the company could get assurance that you won't file a lawsuit, a worker's comp claim, or other type of legal complaint against the company for causing stress that led to medical or emotional issues. The total cost of your severance package would be cheaper than what they'd have to pay a lawyer to handle that sort of legal complaint, even if the case never made it to court.

If that's the case, then the big downside to taking the severance package is that you could forfeit your ability to file such a legal claim. If you weren't even planning on doing that sort of thing in the first place, then it shouldn't really matter.

If you do decide to take the package, make sure to discuss how your job's ending will be officially recorded. "Fired for cause" has implications for things like eligibility for unemployment benefits, plus it's hard to explain to future employers. Quitting with no severance is probably better than agreeing to be fired for cause. Ideally your job can be classified as a layoff but as mxyzplk mentioned in a comment on the question, the term "layoff" has legal implications that might complicate things. If your employment is governed by a contract, there may be additional options like a contract buyout.

Answer 5

Either way, I'm effectively leaving the company on good terms, so why would the company only offer these benefits if I am formally fired?

Notice weeks are usually not a kindness, but rather a legal obligation. The law can stipulate that the "surprised" party (i.e. those who did not initiate the termination) is entitled to a grace period to be able to prepare for said termination.

The absence of such a notice period would put a significant impact on the surprised party, and it would disproportionately affect an employee (whose sole source of income has disappeared) compared to a company (who loses one staff member out of presumably many, but not their source of income). Because of that, company-initiated terminations (where the employee is the surprised party) can require a longer notice period so as to ensure that the employee is able to prepare accordingly.

In my local culture (Belgium), the notice period/severance pay can be up to twice/thrice as long if a company fires you, compared to you handing in your resignation.

Doesn't this add additional costs to the company, such as having to cover unemployment claims if I were to seek unemployment benefits?

Saving money does not seem to be the company's main goal here, as they are already aware of how firing you costs them more money (severance pay). So your question may be valid but seems to be irrelevant to judge the company's current goal.

What are the potential ramifications to me if I decide to take their offer of being terminated?

The main issue with being terminated is that future employers are likely to assume you were fired for not being an adequate employee. That is not provably correct, but the inference is often made.

Your manager offering to write that letter stating mutual agreement about the termination somewhat alleviates that concern, but not fully.

An employer who would already have assumed negative things about you as an employee based on being fired, may also assume that this letter was written to try and hide that fact, and thus ignore the letter (or even use it as further proof that there is something undesirable about you as an employee).

But I can't make any guarantees here. The letter might sway people, or it might not.

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There is one more avenue to consider: what is the company getting out of this?

It's not impossible that this is pure kindness, but it's also possible that the company is getting something from it. There's two options I can think of:

1. They could want/need the longer notice period

If the notice period for termination is longer than that for resignation, they could be trying to ensure you have to stay longer than you would otherwise be required to be.

2. They're trying to hide that you chose to quit, presumably from other employees

I've worked at companies where employee morale was consistently low, and if a liked employee quits, it may spur others on to do the same. Or at least the company fears that this may happen and would rather pay you severance than risk multiple employees quitting.

Is that likely in your case? I can't say. But I've seen this happen in other cases.

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At face value, it seems that the company is showing you a kindness by giving you severance. With the letter in hand, there may be little to no consequences (that negatively impact your life) from having been fired instead of resigning.