Tesla has launched global layoffs, and its main markets, the United States and China, have become the hardest hit areas. So, how does Tesla compensate laid-off employees in the United States, and how is it different from China?
China compensation plan
Domestic media reported that Tesla’s layoffs in China cover multiple departments, some departments have already completed layoffs, and sales staff are the “hardest hit area.” Because all Tesla stores adopt a direct operation model and store sales are also candidates for laid off employees, the proportion of layoffs in China this time may exceed 20%. The compensation standard for laid-off employees is “n+3 (that is, the number of years of service in the unit plus 3 months)” times the salary.
According to people familiar with the matter, some departments will be optimized by 30% to 40%, and individual departments will be optimized by 50%. Other departments are generally at 20%, and the compensation ranges from “N+1” to “N+3”. It is “N+3” after the day of negotiation.
U.S. compensation package
In the United States, Tesla’s layoffs have also been rapid. According to US media reports, Tesla CEO Elon Musk issued an all-employee letter on April 14, local time, announcing a global layoff of more than 10%. Within the next few hours, Tesla sent layoff notices to individual affected employees, telling them that they would receive information on severance compensation “within 48 hours.”
These notices from Tesla were sent to employees’ personal email accounts. Tesla said in an email that they had been fired, effective immediately. Several former employees said they were stripped of access to Tesla’s internal systems around the same time.
So, how does Tesla compensate its employees in the United States? According to information disclosed by five former Tesla employees, the company appears to have provided two months of severance packages to laid-off employees, which means that their wages will be paid until June 14 this year. These severance packages do not appear to be calculated based on the employee’s tenure at Tesla, as employees who have worked at Tesla for a few months to a few years receive the same compensation.
Under the U.S. Worker Adjustment and Retraining Notification Act (WARN Act), businesses with more than 100 employees must give employees 60 days’ notice before making large-scale layoffs. Without proper advance notice, terminated employees are entitled to up to 60 days of pay and benefits. Now, Tesla happens to provide 2 months of severance compensation, which is enough to cover the penalty costs even if it violates the Worker Adjustment and Retraining Notification Act.
Tesla also pays for two months of COBRA health insurance for employees insured through the company, according to a compensation package seen by US media. COBRA, which stands for the Consolidated Omnibus Budget Reconciliation Act, is a health insurance policy that allows employees to continue to have employer-sponsored health insurance after they voluntarily leave or are fired.
Terms of separation
To receive compensation, fired employees must sign a contract that prohibits them from participating in any lawsuits or large-scale arbitrations against Tesla, from sharing any of the company’s trade secrets, or from publicly defaming Tesla. These are relatively standard provisions in severance compensation agreements.
The severance compensation agreement shows that Tesla requires laid-off employees to sign within 5 working days of receiving the agreement, and employees will receive compensation 45 days after the date of dismissal.
Although Tesla began notifying employees of severance compensation information overnight, several Tesla employees affected by layoffs said they had not received compensation information as of Wednesday morning local time.
These severance agreements do not include any information regarding equity awards or unused paid time off (PTO). Tesla employees have “30 days or 3 months (or both)” from the date of termination to exercise their vested rights, according to an exit email sent to fired employees on Tuesday. Stock options, paid time off an employee accrues prior to the date of termination will be paid out in their final paycheck.
