Severance Pay

ritaanz

Our company is looking at changing our severance pay policy. Currently we give 2 weeks pay for each year of service to ALL terminated employees, i.e. lay-off, job eliminated or marginal work performance.

There are sveral times we have called back layed off employees. The people that stayed on felt that we gave the lay off personnel a paid vacation.

We want to change the policy to 1 week for each year of service and limit the package to permanent terminations (exclude reduction in force and lack of work - layoffs). Must the current employees be grandfathered to the old policy? Can we make the policy effective ASAP for all emoployees?

Jane Reddin AZ

[font size="1" color="#FF0000"]LAST EDITED ON 01-17-02 AT 04:20PM (CST) by jrobb (admin)[/font][p]This is a tough one! The question turns on whether your past "policy" amounts to a contractual promise for which your current employees might have an expectation of entitlement to the benefit. If so, Arizona courts have ruled that you must continue to allow that benefit for your existing employees.

Therefore the safest course would be to "grandfather in" your existing employees, but announce a change for any future hires.

While you are at it, I would recommend you re-think the "entitlement" aspect of the policy. You may want to make the receipt of any severance benefit contingent upon the employee's willingness to sign a legally binding severance agreement which includes a release of all possible claims the employee could bring against your company. (Why pay them something for nothing?) In today's economy, we are seeing a huge increase in layoff related lawsuits - mostly age discrimination claims.
Remember: to get a valid age discrimination release, you need to allow an employee to consider the agreement for 21 days (but they don't HAVE to take that much time before they sign it), and then they get to revoke their agreement in 7 days after signing (so don't give them the cash before that time expires!). If you are offering severance packages as part of a reduction that impacts 2 or more people, you need to give them 45 days to consider it, and also give them information about the people who are, and are not, eligible for the program and their ages.

Good luck!
Jane Reddin
Partner, [link:www.lewisandroca.com|Lewis and Roca LLP]
Attorney-editor
[link:www.hrhero.com/azemp.shtml|Arizona Employment Law Letter]