Can I Start a New Job While Receiving Severance During a Transition Period?

This question came from one of our users:

I have a severance agreement from my current employer that has a “transition period” through May. I am trying to figure out if I can start a new job during the transition period to receive the severance benefits, or if I need to wait until May to start a new position at a different company.

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A severance agreement is an agreement offered by an employer (usually a company) to an employee that outlines the financial terms on which the employee leaves the company.

It is a contract between an employer and employee that states what amount of money or continued benefits (health insurance, etc.) an employee will receive from the employer if their employment is terminated by the employer. 

These agreements can also contain provisions that prevent the former employee from making any negative comments about the company/employer, prevent the former employer from suing the company/employer for certain claims (e.g., wrongful termination), ensure confidentiality (e.g., trade secrets), as well as non-compete and non-solicitation clauses.  

Example: Edward's employee has a severance agreement from his current employer, Company 123, LLC, which contains a "transition period.  

Question: Can he start a new job during the transition period and continue to receive the severance benefits provided by the agreement, or does he need to wait until after the transition period to start a new position at a different company, Company ABC, LLC? 

Answer: It depends on the exact terms of the severance agreement he signed. 

Yes, you can start a new job during a severance period and still receive severance benefits IF your severance agreement doesn't explicitly state otherwise. However, as explained, some agreements may include clauses that could negate your eligibility for continued severance payments if you find new employment. 

No, you may not continue to receive severance benefits if you begin a new employment opportunity at a different job during the transition period, IF your severance agreement states that you must not seek new employment within a specific period. 

Enforceability:  

As a contract, severance agreements are subject to contract law.  For example, severance agreements can be challenged on grounds of unconscionability or duress. Unconscionability refers to terms that are so one-sided or oppressive that they shock the conscience. Duress usually refers to the agreement being signed under certain threats. In addition, they must abide by the State's employment laws.

Be aware of your State's law on non-compete clauses, as some states have restrictions on such provisions.  Similarly, some States have certain laws relating to severance agreements and their enforceability. Sometimes, even though a part of a severance agreement may be deemed unenforceable, the rest of the agreement may remain effectively valid and enforceable.  Always thoroughly check your severance agreement for specific terms and conditions and seek legal advice if you have any questions.  

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