Should You Accept A Buyout Offer?

By Mark Swartz
Monster Contributing Writer

When do employers offer voluntary buyouts? Usually when they want to reduce their workforce by a sizeable amount, without having to do large-scale layoffs. Sacking lots of staff is bad for public relations. And it can devastate morale among the left behinds.

 

Voluntary buyouts let workers decide for themselves if they want to exit. Packages come in two flavours: regular buyouts and early retirement packages. The version made available to you will depend on your situation.

 

The big question is, should you accept a voluntary buyout if one is offered where you work? Let’s take a look at your options and their implications.

 

A buyout is a payoff for you to leave your employer voluntarily. The company may need to reduce overhead for financial reasons. Or they’re changing direction and want clean house before hiring new people.

 

Normally the employer arranges it so that accepting a package lets you stay eligible for Employment Insurance. The package itself may contain salary and benefit components. If a lump sum payment is included instead of salary continuance, benefits are usually cut off quickly (or immediately) after acceptance.

 

Buyout offers come with signing deadlines attached. Often the first round of voluntary buyouts is the most generous. As subsequent rounds are offered – or if layoffs occur instead – the amount of money involved can decrease.

 

Your circumstances will determine whether to take or ignore a buyout offer. Factors that will come into play include:

 

·         Age: If you accept a buyout but want to work elsewhere, will your age (and health) be an impediment to getting hired or doing the new job?

·         Finances: Will the buyout leave you better off than if you stayed employed but risk getting downsized later? What effect will it have on your RRSP’s and pension?

·         Employer viability: Are you aboard a sinking ship? If so, taking a package might be a smart move, since a bankrupt employer may not be required to pay any severance.

·         You and your boss: When things aren’t going well with your supervisor, a buyout enables you to exit with a decent explanation for future employers.

 

People who are thinking about changing careers or becoming self-employed should look carefully at buyout offers. The package might provide enough funding to get you started in that next direction. Be sure to get some professional financial advice to guide your decision.

 

Rather than accept a buyout, you could wait around and see what happens. Maybe you’ll be able to keep your job and continue earning a paycheque. The risk is that voluntary buyouts are followed by mass terminations. Sticking it out could leave you unemployed anyway.

 

If you do get downsized, your severance package might have a “claw back” clause. That would limit the amount of money you get if you find a job fairly quickly. On the other hand, large layoffs also give you a good excuse for why you’re job seeking again.

 

For employees who are nearing retirement, buyouts serve as a bridge to when their pension(s) kick in. Some early retirement packages cover the entire time between acceptance and pension eligibility. Others provide a partial bridge.

 

The amount of money the package delivers generally equals the pension payment you’d receive if you’d left at the normal time. Continuation of full or partial benefits may also form part of the deal.

 

For unionized employees, negotiated contracts take precedence in plant closings. Often they don’t provide much more than the minimum government standard. Unions tend to be more concerned with guaranteeing seniority.

 

There are, of course, exceptions. One is the Canadian Auto Workers. Many of their agreements include a lump-sum payment and a voucher for a vehicle.

 

There’s an alternative to waiting for a buyout to be presented. You could try to proactively arrange one for yourself.

 

It’s something you might consider doing if you’re on the verge of quitting. Negotiating your own departure – where you leave with severance, a solid recommendation, and eligibility for Employment Insurance – is a tricky business.

Consult an employment lawyer before announcing your willingness to be bought out. Or you could end up out the front door with no severance at all!