Severance
KenB
28 Posts
I have a question about severance packages?
Are there any risks of discrimination if a company caps a severance benefit at a certain amount per month and also at a lump sum amount. For example, the severance policy is one month's pay for every 2 years of service. However, there will be a cap on the month's pay of $3,000 and a lump sum cap of $30,000. So if someone was making $4,000 per month, the most they could get is $3,000 for each year worked and if someone worked for 30 years, making $3,000 per month, the sum total they could receive is $30,000, rather than $45,000.
My concern is that such a policy could have an unintended discriminatory effect on older employees. In the first case, it may be that older employees tend to get a higher salary, based on the fact that they have put in many years of service and their salary has gone up over the years. In the second case, which seems more likely, someone who has worked for many years is likely to exceed the lump sum cap.
I've seen policies where an employer offers severance benefits up to, for example a 12 month maximum of payments or up to a lump sum cap. However, I wonder if such a policy could end up limiting what an older employee might otherwise receive, and thus end up giving rise to a claim of discrimination.
I'd appreciate any comments.
Thanks.
Ken
Are there any risks of discrimination if a company caps a severance benefit at a certain amount per month and also at a lump sum amount. For example, the severance policy is one month's pay for every 2 years of service. However, there will be a cap on the month's pay of $3,000 and a lump sum cap of $30,000. So if someone was making $4,000 per month, the most they could get is $3,000 for each year worked and if someone worked for 30 years, making $3,000 per month, the sum total they could receive is $30,000, rather than $45,000.
My concern is that such a policy could have an unintended discriminatory effect on older employees. In the first case, it may be that older employees tend to get a higher salary, based on the fact that they have put in many years of service and their salary has gone up over the years. In the second case, which seems more likely, someone who has worked for many years is likely to exceed the lump sum cap.
I've seen policies where an employer offers severance benefits up to, for example a 12 month maximum of payments or up to a lump sum cap. However, I wonder if such a policy could end up limiting what an older employee might otherwise receive, and thus end up giving rise to a claim of discrimination.
I'd appreciate any comments.
Thanks.
Ken
Comments
(EDIT)Ken: A flip of this is that if this sort of scenario were likely to be upheld in court, the EEOC would have already attacked severance packages based on their assertion that certain protected groups have not had the opportunity to gain longetivity at many companies, thus they are going to receive less severance. A convoluted proposal indeed. I'm just glad your company has a severance plan and can afford to continue offering it. It is very, very generous. Much more so than ours. We do trade the severance pay for a signed four-page agreement however. Don D.