Starbucks is closing close to 1% of its stores across the United States, eliminating retail staff as well as more than 900 non-retail workers (1).
Using the company’s annual reports, the business reporting site Sherwood News estimated that as of last year, Starbucks had an average of just under 20 employees per store (2). Starbucks did not disclose how many retail employees are being laid off due to store closures. However, according to CBC reporting, the company plans to finish this year with 124 fewer stores than last year in the U.S. and Canada (3). That would mean something in the neighbourhood of 2,500 retail employees are being shown the door, although the company has promised to try to find work for many of them at nearby locations that aren’t closing (1).
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In a small silver lining, the laid-off workers will have a bit of a cushion until they can find work again, in the form of severance pay.
How laid-off Starbucks workers are being looked after
According to Business Insider, an internal Starbucks document called Severance Summary revealed that laid-off baristas will get 60 hours of pay, shift supervisors will get 84 hours, and cleaning attendants around 30 hours (4). Store managers and regional managers were offered significantly more generous packages with weeks of pay, with more pay for more years of service (5). Retail employees are also going to receive a lump sum payment big enough, the company claims, to cover the cost of three months of health insurance premiums.
Since Starbucks baristas earn around $15 to $22 hourly and shift managers earn around $20 to $29 hourly, this severance pay could add up to between several hundred dollars to more than $2,000 per worker.
One employment lawyer who spoke to Business Insider, Walker Harman, said that this offer was a "positive thing" because it goes beyond any legal requirements and sends the message that the company is trying to do the right thing (4).
Still, workers will need to use this money wisely to try to help them cope with the consequences of being left unemployed.
Since packages are being offered en masse to everyone, according to their specific positions, Starbucks workers may have few or no opportunities to negotiate individual packages for themselves.
But that’s not the case for all laid-off workers. Here’s what you need to know.
What is severance pay?
According to the U.S. Department of Labor, severance pay is often granted to employees when employment is terminated, and it’s usually calculated based on length of service (6).
Severance pay could be paid as a lump sum, or over time like a typical paycheck, and it is intended to help employees bridge the gap until they find another job. It could also help workers cover other new costs they have to pay once they are laid off, like paying for health insurance if the company was covering it.
Companies may offer severance pay as a gesture of good will, or to limit legal risks of a wrongful termination lawsuit. They also do it to maintain positive associations with their brand and mitigate bad publicity due to layoffs (7).
According to a recent Bloomberg article, around a quarter of laid-off U.S. workers get severance pay, while a global survey conducted by a Dutch recruitment firm found that 42% of workers across the world are offered severance in that event (8).
Many of the workers that do collect severance pay are full-time workers, according to HR company Paychex — making Starbucks an outlier, as it also offered severance to part-timers (9).
What are the laws on severance pay?
Severance pay is not required by any state or federal laws. While states do have laws on when final paychecks must be issued, no rules say that companies must offer severance (6).
There is a rule in the Worker Adjustment and Retraining Notification (WARN) Act, which requires that companies with a large number of employees provide advance notice of mass layoffs caused by things like plant closings (10). No severance is required — just 60 days’ notice and guaranteed back pay and benefits for up to 60 days if they don’t get the required notice.
In the absence of laws, severance is a voluntary arrangement between an employer and workers, except in specific cases, such as unionized workplaces where there is a collective agreement in place that mandates severance (7).
As Business Insider reported, Starbucks likely was not subject to any of these requirements, and its offers of severance were voluntary (4).
Read more: How much cash do you plan to keep on hand after you retire? Here are 3 of the biggest reasons you’ll need a substantial stash of savings in retirement
What is typically included in severance packages?
Starbucks’ severance packages included pay based on wages and the cost of health insurance, which is pretty common. According to Thomson Reuters, a severance package may include:
- Payment calculated based on the number of years of service with the company; a common entitlement being two weeks per year of service
- Continuation of some job benefits, like health insurance
- Help for offboarding, like résumé writing assistance or job placement services
- A payout of unpaid vacation time
- A right to exercise stock options that have vested
According to Bloomberg, severance packages are worth an average of $40,000 per employee when they are offered (8). While the Starbucks packages may not be worth that much, they may still help employees make the best of a bad circumstance.
How can you negotiate for the best severance package?
Since the Starbucks packages are being offered to so many employees, it’s not clear if they will have any meaningful opportunities to negotiate.
In many cases, however, you can negotiate on your severance package, especially if you were a full-time worker with a leadership role or held a higher-level position in a company. When you are negotiating:
- Research what’s customary in your industry to determine if your package seems fair
- Consider the big picture, including your length of service and what benefits you had at work, like earned vacation you are entitled to or health insurance premiums you would like the employer to cover
- Understand why your employer might negotiate severance. As employment lawyer Drew Lewis explained on his blog, employers are usually more willing to negotiate if they fear you may have a legal claim, if they want you to keep things confidential, or if they don’t want you to work for a competitor (11)
- Be specific in the request you are making. Explain what you’re asking for and why
- Determine what you’ll do if your employer won’t negotiate, including whether you’ll walk away or seek legal representation
Keeping these tips in mind should help you negotiate the best agreement possible. You may also need to consult an employment lawyer, if you believe you may have a legal case, or if your employer is trying to get you to agree to things that would limit your future rights, such as not working for a competing company.
How can you use your severance when looking for a new job?
If you are offered severance, you’ll want to make the best use of that money. You could:
- Add it your emergency fund
- Invest in job training to help you find new work
- Use the money to cover key expenses, after revising your budget to account for lower income while you are unemployed
You should also apply for unemployment insurance as soon as you can to help the money stretch further. Many states allow you to collect unemployment even if you are getting severance, so try to apply for it as soon as you are eligible (12).
Starbucks workers face a tough road ahead in this job market, but these tips should help them, and anyone else who is laid off, try to stay financially secure until they find another role.
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Article Sources
We rely only on vetted sources and credible third-party reporting. For details, see our editorial ethics and guidelines.
Starbucks (1); Sherwood News (2); CBC News (3); Business Insider (4); Business Insider (5); U.S. Department of Labor (6); Thomson Reuters (7); Bloomberg (8); Paychex (9); U.S. Department of Labor (10); Drew Lewis (11); CNBC (12)
This article provides information only and should not be construed as advice. It is provided without warranty of any kind.