May 3, 2018 NPFM Meeting: Considerations and Legal Issues relating to Separation Packages for a Departing Employee

Considerations and Legal Issues relating to Separation Packages for a Departing Employee

Separations from employment present a minefield of overlapping statutes, regulations, and internal policies and procedures. They are often emotionally charged for both the employer and the departing employee.  Jeff Siegel and Desiree Murphy, experienced management-side employment attorneys from Morgan, Brown & Joy, LLP, gave a presentation about when an employer should consider proposing a separation package for an employee, the types of clauses and options available to employers when presenting or negotiating a separation package, and how to draft legally enforceable separation agreements.  They provided insights and practical experience on how to navigate the legal issues these disputes present and offered suggestions on how to avoid costly litigation and (hopefully) reach an amicable resolution to an often difficult situation. Morgan, Brown, & Joy LLP has been representing employers in employment and labor law since 1923. Jeff has worked there for 13 years and Desiree for 3 years.

Most often, severance packages to departing employees who have been terminated involve giving a certain amount of money to them in exchange for agreeing not to sue the organization, its management, etc. Money is the driving force 90% of the time. From the employer’s viewpoint, you should offer the least amount that will accomplish the task. There are several ways to do this. You can offer a lump sum payment or you can arrange to continue paying the ex-employee’s salary for a certain number of weeks or months. You can also offer to continue health insurance payments for a set period of time. The employment ends as of the termination date, even though you are continuing payment in some form. The employer is under no obligation to offer the same package to different employees.   The employer can also agree not to contest the ex-employee filing for unemployment benefits. It is best to treat the payments as reportable on W-2 forms. If the terminated employee signs a release form with the employer, that will not affect their ability to file for unemployment benefits.

There can be non-monetary features of a separation agreement. The employer can agree to give the ex-employee either a positive or a neutral reference.   Often, these agreements have a confidentiality clause. Usually the employer wants this, and sometimes the ex-employee wants this also. Any confidentiality agreement applies to everyone in your organization.   In adversarial terminations, it is best to get everything settled and signed at the same time. If the employer asks the ex-employee to sign a release of claims, that does not affect any future rights against the employer. It is important to cite the specific laws, regulations, etc. explicitly in the body of the release. The regulations affecting releases are a creature of state laws, so you need to closely follow your state regulations. You need to ensure that the release covers the appropriate claims and potential claims, and that the release complies with ADEA (age discrimination) and OWBPA (older American protection).