In a time of economic uncertainty, layoffs are increasing. Know the rules around offering term packages.
Before Helen Robinson went to law school, she worked at a large insurance company for 20 years, where she spent the bulk of her time climbing the executive career ladder. She remembers the boss who promoted her to a human resources management position, telling her that when it came to employee disputes and there was a 50-50 tie about whether an employee or the company was right, giving the edge to the employee would allow the company to win every time.
“It shouldn’t be us vs. them,” she says. “You get better business results when you treat people fairly.”
Today, Robinson practices law at Marshall & Forman, where she represents only employees in matters such as discrimination, wrongful termination and sexual harassment claims. With the job market shaky because of COVID-19 and interest in severance plans increasing, she says it’s a good time for employers considering them to make sure they are structured to eliminate errors that could land them in court.Stay up to date with the region’s movers and shakers, top employers, philanthropic causes, real estate developments and thriving creative and startup scenes. Subscribe to Columbus CEO’s weekly newsletter.
Robinson and Columbus labor and employment attorneys who represent companies recently talked with Columbus CEO magazine about severance plan dos and don’ts, including the impact of COVID-19.
ERISA or not
The Employee Retirement Income Security Act of 1974 is a federal law that sets minimum standards for most retirement, health and other welfare benefit plans. ERISA-compliant severance plans allow companies to avoid claims for damages under state law, but require extra steps for reporting and compliance. Going through those steps might be worth it for a company that has recurring terminations and wants a plan that allows uniform administration across states.
“If a company has a plan structure that is facially nondiscriminatory that applies to everybody who is in a particular category who is severed, that makes it relatively difficult for an affected employee to assert an age discrimination claim,” says Jennifer Dunsizer, a partner at Vorys Sater Seymour and Pease and a member of the firm’s labor and employment group.
Companies that rarely terminate employees may decide against a formal ERISA plan and instead negotiate severance packages on an individual basis, she says. In that case the employer should document what it offers and to whom so that it can be proven that there is a defensible business justification for providing one employee with a richer benefit than another had received.
One of the most common ways an employer can mess up is tied to informational requirements related to age and group termination, says Bill Nolan, managing partner of Barnes & Thornburg’s Columbus office. That’s because all it takes to constitute a “group” is the termination of two people, he says.
The Age Discrimination in Employment Act (ADEA) requires that the employer give an employee age 40 or older at least 21 days to consider a severance offer. But when it becomes a group termination, if the employees are 40 or older, they are given 45 days to accept or reject the offer.
“Employers tend to overreact when they hear about the 45-day requirement instead of the 21 days,” Nolan says. “It doesn’t often matter that much because most people don’t take the whole time because they want their money.”
The Older Workers Benefits Protection Act also gives employees certain rights that companies should be aware of. It’s an amendment to the ADEA and requires the employer in a group termination to advise each employee of who in their decisional unit was also let go and who was kept, identified by title and age.
Ohio is not Cali
In Ohio, in the absence of a contractual obligation to do so, there is not a statutory requirement for employers to offer severance payments to terminated employees. Many companies, however, have employees and operations in other states and countries.
“Some states may require that certain payments be made when an employee is separated,” says Joëlle Khouzam, a partner at Bricker & Eckler. “For example, in California, employees are statutorily entitled to any accrued but unused vacation time, which is treated as a form of earned wages. Some countries also have requirements that a certain amount of severance be paid at the time of separation. So, companies with multinational locations should be familiar with the requirements in the countries where they may be doing business.”
Keeping tabs on changing laws by state is a good idea, Nolan says. Earlier this year, for example, New Jersey became the first state to require severance for mass layoffs, HR Dive reports.
Robinson says severance agreements usually contain nondisclosure and confidentiality requirements, but even though the affected employee may not discuss it, employees may still find out about severance agreements from other sources or, unfortunately, through the grapevine.
“Put formal policies in place so you are using objective criteria to determine who gets how much,” she says. “Using objective criteria lessens the chance someone can successfully make a claim based on sex, age or race.”
Position eligibility and years of service are two ways to chart out the amount of severance someone might receive, she says.
Dunsizer says another easy way to err is how a termination is communicated. Trying to smooth something over by making an older employee who is not tech savvy feel better about the fact that he can’t do his job as it’s currently constructed could lead the terminated employee to think the termination was age-based and not performance-based.
“It’s a mistake to try and soften the blow,” she says. “Something perfectly valid ends up being tainted. It’s the No. 1 thing I see.”
According to management consulting firm Korn Ferry, during the pandemic, many companies have kept severance policies in place and instead have instituted pay cuts and salary freezes and made changes to bonus plans and incentives to save money.
What’s different because of the crisis is the new dynamic of remote termination, Khouzam says.
“Not only do employers have to think about the challenges of potentially terminating someone via Zoom, but the employer must also consider in advance how to handle many details that are normally addressed during a face-to-face exit interview,” she says. “That would include things like collecting company keys, fobs or scan cards; getting computers or company tools and uniforms back; getting all intellectual property or confidential information back; and settling up the terms of any loans or advances the employee may have.”
Other planning considerations include how voicemail, email and the cell phone number of the separated employee will be handled, whether a press release or internal announcement is in order and whether local counsel should be consulted in addition to regular counsel if the affected employee is out of state.
Laura Newpoff is a freelance writer.