Workers who have recently been laid off or fired often wonder if they are entitled to “severance pay” or a “severance package,” generically defined as money and/or benefits one receives when losing their job. Severance pay is not legally required in most situations, and many workers are laid off or fired without receiving any severance pay. Companies generally offer severance pay in one of two situations:
- A company is going out of business and promises severance pay to assure workers they will have money to help them bridge the gap until their next job.
- A company fires a worker and wants a “clean cut” where the worker cannot sue the company or speak badly about it after the firing.
The above scenarios are discussed in more depth below. If you have been fired, the “Release of Claims” scenario may (or may not) apply to your work situation.
Severance Pay Plan
Large employers often establish severance pay plans for involuntarily terminated employees. One Wisconsin federal court has explained the purpose of severance pay plans in the context of the closing of business operations as: “to ensure that employees do not all jump ship before the business is actually ready to wind up.” The court went on to explain that the employer was “not paying [the departing employees] thousands of dollars simply as a reward for a job well-done; it was quid pro quo …” Put succinctly, “[a] severance payment is not like a gold watch—it has an economic purpose above and beyond merely generating good feelings.” Reddinger v. SENA Severance Pay Plan
Release of Claims
In the majority of cases, severance proposals are created for and offered to employees on a case-by-case basis and, among other things, are intended to secure a release of employee claims against the ex-employer. Most employment claims can be waived by an involuntarily terminated employee. In Wisconsin, workers’ compensation benefits are one major set of claim which employees may NOT waive in a severance settlement.
Federal Age Discrimination Claims and the Older Workers’ Benefit Protection Act
Employers seeking the release of employee federal age discrimination claims must adhere to the specific requirements of the Older Worker Benefit Protection Act. The OWBPA requires the following in order to validly waive rights or claims under the Federal Age Discrimination in Employment Act (“ADEA”):
(A) the waiver is part of an agreement between the individual and the employer that is written in a manner calculated to be understood by such individual, or by the average individual eligible to participate;
(B) the waiver specifically refers to rights or claims arising under the ADEA ;
(C) the individual/employee does not waive rights or claims that may arise after the date the waiver is executed;
(D) the individual/employee waives rights or claims only in exchange for consideration in addition to anything of value to which the individual already is entitled;
(E) the individual/employee is advised in writing to consult with an attorney prior to executing the agreement;
(i) the individual/employee is given a period of at least 21 days within which to consider the agreement; or
(ii) if a waiver is requested in connection with an exit incentive or other employment termination program offered to a group or class of employees, the individual is given a period of at least 45 days within which to consider the agreement;
(G) the agreement provides that for a period of at least 7 days following the execution of such agreement, the individual may revoke the agreement, and the agreement shall not become effective or enforceable until the revocation period has expired;
(H) if a waiver is requested in connection with an exit incentive or other employment termination program offered to a group or class of employees, the employer (at the commencement of the period specified in subparagraph (F)) informs the individual in writing in a manner calculated to be understood by the average individual eligible to participate, as to–
(i) any class, unit, or group of individuals covered by such program, any eligibility factors for such program, and any time limits applicable to such program; and
(ii) the job titles and ages of all individuals eligible or selected for the program, and the ages of all individuals in the same job classification or organizational unit who are not eligible or selected for the program.
Often employers seek other consideration from involuntarily terminated employees as consideration for severance pay. For example, employers may demand that a departing employee commit to a “non-disparagement” provision. Under such an agreement, an employee may not communicate negative information about her former employer or risk breaching the agreement. They may also request a provision that prohibits a former employee from submitting applications for employment in the future.
When Considering a Severance Agreement, Consult an Attorney
Most severance agreements include a recommendation that the terminated employee consult with an attorney for guidance on the terms of the agreement, as contractual language can be technical and difficult for some employees to understand. The employment attorneys of Hawks Quindel can help you understand contractual language, ask important questions about your employment situation, and, if necessary, help you negotiate a severance agreement that protects your rights.
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