Employers’ Cash-for-Clunkers Program: When to Pay Severance to Terminated Employees

It happens everyday. Employees are let go for poor performance or lack of work. After the decision to terminate has been made, employers must consider whether to offer the employee additional pay or benefits in exchange for a release by the employee of all claims he or she may have against the employer.

A separation and release agreement is simply the contract used to document the understandings reached by the parties. In addition to the severance payment and release, the employer might agree to provide a neutral reference or outplacement services for the employee. The agreement might also contain an agreement by the employee avoid working for a competitor for a period of time.image

When should an employer consider a separation and release agreement? The following situations are typical:

· A termination in which the employee has already asserted a claim against the employer;

· A termination in which the employer is concerned that the employer will likely assert a claim;

· A termination in which the employer is willing to provide extra pay or benefits above what the employer would normally be entitled in exchange for a waiver of claims.

Although a waiver of claims is very desirable, employers should consider the possible consequences of asking for such a waiver, particularly if the severance payment is going to be small. By asking for the waiver, the employer may suggest to the employee – for the first time — that he or she actually has a claim.

See also:

Top 10 Layoff Tips
Best Practices When Considering a Severance Agreement

Top 10 Layoff Tips

Layoffs and reductions in force were the topics of a seminar we presented yesterday, during which we reviewed how to plan and implement workforce reductions, requirements for severance agreements and releases, and alternatives to layoffs.shutterstock_21093820

In following up to yesterday’s discussion, here is a list of the “Top 10 Layoff Tips”: 

1. Plan your business first.

Your business plan should always be at the forefront of any decision. Don’t let a reduction in force later hamper your ability to compete. Even if they don’t result in costly litigation, short-sighted layoffs can be expensive because when your business picks back up you will eventually need to replace your laid-off employees.

2. Plan your reduction in force second.

Any reduction in force, whether a traditional lay off or an alternative, should complement your business plan. The short-term goal is to cut costs, but a reduction in force should not cut corners.

3. Consider alternatives.

There are many alternatives to traditional layoffs, and their beauty is that you can tailor them to fit your company’s needs. Alternatives include job sharing, reducing employee hours, voluntary sabbatical programs, and cutting benefits. The list is long and varied, so be creative.

4. Document, document, document.

HR professionals who are worth their salt know that good documentation is the first line of defense to an employee’s discrimination claim. Likewise, impeccable documentation of your reduction in force planning and implementation is your first line of defense to discrimination claims that may arise from a reduction in force.

5. Control the process.

Translation: Don’t wait until the last minute. If you think your business is on shaky ground, start thinking about how to reduce your labor costs. Ultimately, you want a reduction that cuts costs, keeps your best employees, and can get your business through the economic downturn. If you wait and make labor cuts your last resort, you will likely sacrifice one of those goals.

6. Involve stakeholders.

Who? The people who can be trusted with the company’s actual financial condition, who have a good reputation with employees, who can think creatively, and who represent affected employees. These are the people who have demonstrated a commitment to your company’s success. Don’t just involve the same managers who make all of the decisions. Think creatively about who to involve in the process.

7. Seek the advice of legal counsel early.

This accomplishes two important things. First, layoffs can lead to angry employees, who are more likely to sue you. Involving legal counsel early can help you reduce your exposure to lawsuits by making sure your reduction in force does not run afoul of any employment or labor laws.  Second, your communications with counsel are likely protected by the attorney-client privilege, which is important in litigation. This does not mean that the process should be kept secret, because it shouldn’t. The purpose of the privilege is to give clients the opportunity to speak freely and without the concern that what they say to their attorney will be used against them later. That, in turn, means you can float your creative ideas by your attorney and not have your brainstorming held against you.

8. Thoughtful risk analysis.

Whether you involve legal counsel or not, any reduction in force has to be planned and implemented with an eye on potential legal missteps. If you control the process, you also have an opportunity to think about the potential hazards in a meaningful way. Consider the risks your reduction in force poses and if they are too great, change the plan.

9. Identify WARN notice issues.

We’ve posted about the Worker Adjustment and Retraining Notification (WARN) Act before. Basically, it’s a federal law that requires certain employers to give employees 60 days advance notice of a layoff. If you employ at least 100 full-time employees or 100 full-time and part-time employees who, in the aggregate, work at least 4,000 hours per week, any reduction in force discussion should include consideration for the WARN Act.

10. Special considerations for older workers.

There are laws that pertain only to employees who are forty or older, and those laws have particular requirements for things like releases and severance packages. This is one more reason to involve your legal counsel early so that you can readily address any issues presented by workers who are covered by the Older Workers Benefit Protection Act (OWBPA) and the Age Discrimination in Employment Act (ADEA).

Best Practices When Considering a Severance Agreement

Many employers use severance agreements as a way to protect their business from legal liability arising from terminating employees.  Larger companies sometimes use them in just about every termination, while most smaller companies are more selective–offering severance packages only when there is a particularly volatile situation or where there is already a suspicion that the employee will try to sue.  Here are the Top 5 tips that every employer should know about severance agreements before offering one to a soon-to-be former employee.

Who Should Be Offered a Severance Agreement?

The modern school of thought says that employers should consider offering a severance package to all persons who are laid off during a reduction in force (RIF) contract or agreementand to any employee who, for whatever reason, may be particularly inclined to sue. 

Some employers offer severance agreements to every person they terminate.  This becomes problematic, though, when they find themselves having to offer to pay money to an employee with serious policy infractions.  For example, do you really want to offer severance to an employee who is being terminated because he was found to have harassed several female employees?  Probably not.  And he’s probably not likely to sue the company.  But, because they’ve always given severance, the employer is hesitant not to do the same for this employee. 

Specific Requirements for Employees Over 40 Who Are Offered a Severance Package

For severance agreements offered to employees aged 40 and over, the Older Workers Benefit Protection Act (OWBPA), imposes certain requirements that require strict compliance.  Specifically, the agreement must provide that the employee has 21 (or 45, in the case of layoffs) days to consider the offer.  Then, even after acceptance, the employee has seven days to revoke their decision. 

Failure to include this very specific language can result not only in the agreement being unenforceable, but also in liability against the employer if the employee files suit on the ground that the agreement is not in compliance with the law.  It can also invoke a visit from the Department of Labor.

What the Severance Agreement Can and Should Prohibit

A severance agreement should prohibit the employee from filing suit on his or her own behalf against the employer from any and all claims arising from the employment relationship.  It should also prohibit the employee from encouraging or assisting others in filing suit against the company. 

The agreement may not prohibit the employee from filing a Charge of Discrimination with the EEOC or local state agency.  But it can prohibit the employee from collecting any damages if the EEOC pursues a suit on the employee’s behalf against the employer. 

There has recently been discussion on whether an employee can waive his or her rights under the FMLA. For a while, there was some indication by the courts that such a waiver would not be enforceable.  Recent guidance indicates the opposite–that FMLA claims indeed can be waived in a severance agreement.

Another area subject to debate is the inclusion of a “no-hire” provision.  Some courts have held that an employer who requires its employee to agree not to reapply for future work with the company is actually engaging in unlawful retaliation.  But, again, some recent court decisions have found that an employer who refuses to rehire a former employee who had been fired previously where the refusal is based on a “no-hire” provision, is not engaging in retaliation. 

What to Do When an Employee Wants to Negotiate a Severance Agreement Offer

The answer to this question is more about instinct than anything else.  Especially where the employer does not offer every terminated employee a severance agreement, it is easier to refuse to negotiate it and extend a “take-it-or-leave-it” type offer.

This is especially true if the employee is going to run up the clock with your lawyer.  Remember to include the costs of negotiation in your settlement offer.  If you are wiling to negotiate for an additional amount, try to quantify that amount in advance and realize that, once your expenses have reached that pre-defined maximum, then you either have to cease negotiations with the former employee or reduce the offer so you break even at the end. 

It is not uncommon for employees to attempt to negotiate.  Often, this is more of a pride issue than anything else.  If you’re able to be flexible with any point, it may be enough to satisfy the employee that she walked away with her pride still intact.

Other than more money, consider whether a positive or neutral letter of reference may satisfy the negotiating employee.  Or maybe offer to pay his first 2 months of COBRA payments, especially if this may be an area of concern for the employee because of a special health-care need in his family.

Use a Lawyer

This point cannot be stressed enough.  I have lots of clients who want to reuse old severance agreements as boilerplate agreements instead of calling me for a new one each time.  Really, this is not a good idea.  I can put together a custom severance agreement that is appropriate for the circumstances specific to the employee in less than a half-hour for regular clients and for businesses I know something about or with which I have worked before. 

This is a small price to pay when compared to the expense of a lawsuit brought by an employee who already received severance payments but who was given a defective severance agreement based on a standard, one-size-fits-all template or form.

And the same goes for the employee. Don’t just “let” them use a lawyer.  Encourage it.  And, to be legally compliant, state as much in big, bold, letters on the agreement itself.  It is in your best interest the employee fully understand what rights they are releasing to prevent buyer’s remorse.

Bad Reason #29 to Fire an Employee

There are good reasons to terminate an employee.  There are also plenty of bad reasons.  And then there are really bad reasons.  This story is an example of the latter. 

cops for cancer 2

A waitress in Owen Sound, Ontario, was “laid off” after she had her head shaved for a cancer fundraising event.

Stacey Fearnall (pictured) raised more than $2,700 for charity, but when she showed up for work and refused to sport a wig for her shift, her boss told her to take the summer off.

Her employer, Dan Hilliard, says his restaurant has certain standards prohibiting men from wearing earrings and requiring employees to keep their hair at a reasonable length.  Should she agree to wear a wig during her shifts, she’s welcome to return.  If not, she should consider herself unemployed until her hair regrows to a “reasonable length.”

Hillard acknowledges that his decision to not let Fearnall return to work has been a bit of a public relations disaster. But he stands by it nonetheless, insisting that he has received support from some customers who agree with him and say they would have been “appalled” to have been served at Fearnall’s table. 

He also claims that Fearnall, a 27-year-old mother who also works a a plant nursery and as a caterer, was told in advance that the restaurant owners wouldn’t be pleased if she participated in the fundraiser and suggested she find alternative ways to support the cause.

Maybe it’s just me but do any of these “reasons” sound legitimate?  This is yet another example of when something can be legally viable and just plain dumb at the same time. 


Source:  TheStar.com