Severance packages are a common way for employers to provide financial and other support to employees who are being laid off or terminated. While severance packages can help ease the transition for employees, they can also be a source of legal risk for employers if not handled properly. Employers must navigate a complex web of federal and state laws when offering severance packages, and failure to comply with these laws can result in costly legal disputes.
In this article, we will provide an overview of the legal requirements for severance packages and offer tips for drafting and offering legally compliant severance packages to employees. By understanding the legal aspects of severance packages, employers can minimize their legal risks and ensure a smooth transition for both themselves and their employees.
Legal Requirements for Severance Packages
Employers must comply with a variety of federal and state laws when offering severance packages to employees. Failure to comply with these laws can result in costly legal disputes and damage to an employer’s reputation. Here are some of the key legal requirements that employers should be aware of when offering severance packages.
Federal Laws
Employers in the U.S. must comply with federal laws related to severance packages, which cover a range of topics including notice requirements for mass layoffs or plant closings, age discrimination, and confidentiality and non-disparagement clauses in severance agreements.
The Worker Adjustment and Retraining Notification Act (WARN)
The WARN Act is a federal law that requires certain employers to provide advance notice to employees before implementing a mass layoff or plant closing. The law applies to employers with 100 or more employees and requires them to provide at least 60 days’ notice before a layoff or plant closing. If an employer fails to provide the required notice, affected employees may be entitled to severance pay.
The Age Discrimination in Employment Act (ADEA)
The ADEA is a federal law that prohibits employment discrimination against individuals who are 40 years of age or older. When offering severance packages, employers must ensure that they do not discriminate against older workers. Specifically, employers must provide older workers with the same severance benefits as younger workers, and must not offer less favorable terms to older workers based on their age.
National Labor Relations Act (NLRA)
The NLRA has issued guidance on the use of confidentiality and non-disparagement clauses in severance agreements. According to the NLRB, such clauses may violate the NLRA if they are overly broad and prohibit employees from discussing their wages, hours, or working conditions with each other or with labor unions. Similarly, clauses that prohibit employees from filing charges with the NLRB or from participating in NLRB proceedings may also violate the NLRA.
State Laws
In addition to federal laws, employers must also comply with state laws related to severance packages. These laws vary by state but may include requirements related to the timing and content of severance agreements, as well as requirements related to the payment of severance benefits. Employers should consult with an attorney familiar with the laws in their state to ensure compliance with all applicable legal requirements.
Legal Considerations for Severance Package Components
Severance packages must comply with a variety of federal and state laws, as well as any applicable employment agreements, collective bargaining agreements, or company policies. Understanding the key components of a severance package can help employers ensure legal compliance and avoid disputes with employees. Here’s a closer look at some of the key components of a severance package from a legal compliance perspective.
Payment
Severance pay is a critical component of a severance package, and employers must ensure that the payment of severance benefits complies with all applicable legal requirements. Employers should review any applicable employment agreements, collective bargaining agreements, or company policies to ensure compliance with any contractual obligations related to the payment of severance benefits. Additionally, employers should be aware of any legal requirements related to the payment of severance benefits, such as the requirements under the Worker Adjustment and Retraining Notification (WARN) Act.
Benefits
Severance packages may include the continuation of certain benefits, such as health insurance or retirement benefits. Employers must ensure that the continuation of benefits complies with all applicable legal requirements. For example, employers must comply with the Consolidated Omnibus Budget Reconciliation Act (COBRA) when offering continued health insurance coverage to terminated employees and their dependents.
Outplacement Services
Offering outplacement services as part of a severance package can help reduce the likelihood of legal action from terminated employees. Outplacement services can provide employees with the support they need to find new employment opportunities, which can help them move on from their previous employment relationship and minimize the risk of legal disputes. Employers should ensure that any outplacement services offered as part of a severance package comply with all applicable legal requirements.
Tips for Drafting a Legally Compliant Severance Package
Drafting a legally compliant severance package can be complex, but there are some tips that employers can follow to ensure that their severance packages comply with all applicable laws and regulations. Here are some tips for drafting a legally compliant severance package.
Consult with Legal Counsel
Employers should consult with legal counsel when drafting a severance package to ensure that it complies with all applicable laws and regulations. An experienced employment attorney can help employers identify any legal risks associated with the severance package and can provide guidance on how to mitigate those risks.
Be Consistent
Employers should strive to be consistent when offering severance packages to employees. Inconsistencies in the terms and conditions of severance packages can lead to legal disputes and damage to an employer’s reputation. Employers should establish clear policies and procedures for offering severance packages and should ensure that those policies and procedures are applied consistently.
Use Clear and Concise Language
Severance packages should be drafted in clear and concise language that is easily understandable by employees. Employers should avoid using legal jargon or technical terms that may be confusing to employees. Additionally, employers should ensure that the terms and conditions of the severance package are presented in a logical and organized manner.
Consider the Employee’s Perspective
When drafting a severance package, employers should consider the employee’s perspective. This includes considering the employee’s needs and concerns, as well as any legal requirements related to the payment of severance benefits. Employers should strive to offer a severance package that is fair and reasonable, and that provides meaningful support to the employee during the transition period.
Key Takeaways
Offering a legally compliant severance package is essential for employers to minimize legal risks and ensure a smooth transition for both themselves and their employees. Employers must comply with a complex web of federal and state laws when offering severance packages, and failure to comply with these laws can result in costly legal disputes. Employers should consult with legal counsel, be consistent, use clear and concise language, and consider the employee’s perspective when drafting a severance package.
Additionally, employers should consider offering outplacement services as part of their severance package to support terminated employees and demonstrate their commitment to helping them find new employment opportunities. Find My Profession offers outplacement services with a hands-on approach to getting your employees back to work. We offer both resume writing and reverse recruiting services.
By taking these steps, employers can ensure that their severance packages are legally compliant and provide meaningful support to employees during a difficult period.
