Severance Pay and Releases

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EXCITING NEWS AT FOLEY & FOLEY, PC!

Matthew J. Murphy has joined our firm. Matt brings a unique perspective to representing employers. Matt was a member of the teamsters at UPS, a member of two public sector employee unions, and currently serves as counsel for the Barnstable County Sheriff’s office. Please check out his bio on our website – www.foleylawpractice.com.

SUCCESSFUL REDUCTIONS IN FORCE: SEVERANCE PAY AND RELEASES

The September 2008 job report issued by the Federal Labor Department was abysmal—job cuts are at a five-year high. Reductions in force have now become a daily occurrence in many business sectors, and we regularly are asked to guide our clients through an effective Reduction in Force (RIF) process. For more information about potential challenges to a RIF and related best practices, check out our e-newsletter titled "Successful Reductions in Force: Easier Said Than Done."

We remind our clients that they are not required to have a severance plan or a severance policy in order to offer severance pay and obtain a release when a layoff occurs. If there is a severance plan, however, that plan should be examined to ensure that it complies with the Employee Retirement Income Security Act (ERISA).

Many employers are requiring employees to sign a release and waiver of claims as a precondition to the receipt of any severance benefits. If your current severance plan or policy or agreement does not require an employee to sign a release as a condition to the receipt of severance benefits, we recommend that you consider amending that document to add that requirement. The bottom line - there is no more effective way to limit litigation challenging a RIF than offering employees a severance package in exchange for a signed release!

Not surprisingly, analysis of potential age discrimination has raised some of the most important issues involving the validity of releases and waivers of claims. The Age Discrimination in Employment Act (ADEA) requires that releases signed by employees over the age of 40 must comply with the Older Workers Benefit Protection Act (OWBPA).

In a group layoff situation, the OWBPA requires that employers allow employees up to 45 days to consider whether to sign a release. An individual layoff situation gives employees 21 days to consider a waiver. All individuals accepting a waiver must have a period of 7 days to revoke the severance agreement. Under the OWBPA, an employer must give something of value, beyond that which the individual is already entitled, in exchange for the waiver of claims whether it is a group or individual layoff situation.

Common terms within severance packages:

A letter from the company advising the employee that their position has been eliminated and/or that they have been laid off by date certain (typically immediately). The letter is hand delivered to the employee along with the final paycheck for services rendered and a check for the value of the accrued vacation time. The letter also informs the individual of the right to elect to continue group health insurance coverage either under the Consolidated Omnibus Budget Reformation Act (COBRA) or a Massachusetts mini-COBRA law. The letter may also inform the individual that they may apply to the DUA for unemployment compensation. In Massachusetts, receipt of severance pay does not disqualify an individual from receiving unemployment compensation.
A comprehensive release and waiver of all claims.
A statement of the consideration for release of claims; typically in the form of salary and/or insurance continuation for a period of time.

FINAL THOUGHT

Although there is no escaping the emotional impact of RIF, effective planning can help accomplish your business goals and avoid exposure. The best way to avoid litigation challenging a RIF is to encourage employees to sign a release as outlined above.

Questions?.

Contact info@neworkplacelaw.com or call 508-548-4888

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