Diversity & Inclusion

Using Severance Packages to Manage Problem Employees Out of Your Workforce

From time to time, you may be faced with the opportunity to “outsource” an employee’s talent to your competition. This article covers some strategies for accomplishing such a maneuver while reducing the risks to your organization.

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Some state laws (West Virginia’s, for example) and federal law require you to take certain steps if you’re going to put a severance package in front of an employee. Technically, of course, to give an employee a severance package, you don’t have to meet the state and federal requirements. The law enters the picture only if you want to have a valid release of claims from the employee in exchange for the money you’re paying.

Follow the steps and you can have a valid and binding release. Fail to follow the steps and, well, you’ve given the employee an early Christmas present while getting nothing in return.

OWBPA protects older workers

Congress amended the federal age discrimination laws several years ago because employers implementing large reductions in force (RIFs) were giving employees a very small window in which to consider severance packages. Employees were being asked to surrender their legal rights based on limited information. They found themselves facing the horns of a dilemma: Forgo a severance package and take a gamble on litigation, or accept the severance package and perhaps give up a legitimate age discrimination claim.

By enacting the Older Workers Benefits Protection Act (OWBPA), Congress mandated that employers (1) give employees time to consider severance packages, (2) advise them of their right to consult with counsel, and (3) when laying off two or more employees, provide information about the workers affected by the RIF. The OWBPA’s overarching purpose is to slow down the process.

WVHRA waivers

In seeking to ensure “knowing and voluntary” waivers of rights under the West Virginia Human Rights Act (WVHRA), the West Virginia Human Rights Commission (WVHRC) adopted the OWBPA’s approach with one notable and important difference: The OWBPA applies only to the release of employees’ age discrimination claims; the WVHRC’s regulations go much further than that.

The WVHRC’s regulations require you to jump through hoops to get a valid waiver of any individual can file under the WVHRA. Thus, the regulations apply to discrimination claims based on sex, religion, national origin, disability, race, and, of course, age. Moreover, the regulations cover more than just severance from employment. If you want peace with a job applicant who is alleging a discriminatory failure to hire or a current employee complaining about a failure to promote, then you also must jump through the regulations’ hoops.

Jumping through the hoops

The regulations’ practical effect is that a West Virginia employer must look first to state law. Compliance with the broader WVHRA will ensure compliance with the OWBPA. The following “hoops” are almost identical under state and federal law:

  1. You must give the employee up to 21 days to consider the severance package.
  2. You must specifically refer to the WVHRA and the Age Discrimination in Employment Act (ADEA).
  3. You must give the employee “consideration” (i.e., something of value in addition to what she is otherwise owed).
  4. You must notify the employee of her right to consult legal counsel.
  5. The employee must be given seven days to revoke the acceptance after signing the severance agreement. Of course, all of this must be communicated to the employee in writing.

If two or more employees are being let go as part of the same RIF, the game changes a bit. Rather than the 21-day review period, you must give the employees up to 45 days to look over the package. You will also need to pull back the curtain and provide them some additional information.

You must tell the employees which class, unit, or group is covered by your exit incentive or employment termination program. You must disclose the eligibility factors and any time limits applicable to the program. Moreover, you must provide the job titles and ages of all individuals eligible or selected for the program, plus the ages of all individuals in the same job classification or organizational unit who aren’t eligible or selected for layoff. Finally, you must inform the employees of the method and/or factors used in arriving at the amount of consideration you’re offering.

The purpose of the longer period to mull the offer and peruse certain information the employer must disclose is to allow the class of affected employees to ferret out whether their employer is practicing age discrimination as it thins the ranks. Severance programs can operate in one of two ways: Either employees are invited to participate in an exit incentive program, or they are being laid off involuntarily and offered a package to soften the landing. When a single employee is being let go, the only decision put to him is whether he wants to sign a release in return for receiving consideration.

Outsourcing a Problem Employee

It’s against that legal backdrop that you must formulate your strategy to maneuver a problem employee out of your organization. If you have good cause to fire the employee—certainly if provable egregious misconduct is involved—then you should simply terminate him. Introducing the specter of a severance package may just muddy the waters and signal to the employee that you have less than total confidence in your position.

Otherwise, you may want to offer a severance package to an employee who has been a malcontent or a marginal performer but has managed to stay on the safe side of the termination “cut line.” Marginal employees who are in protected classes or have engaged in protected activity are good candidates for severance packages. Why? It isn’t because of their protected class or activity; rather, it’s the litigation risk they pose.

When considering whether to offer a severance package, you need to weigh how big of a carrot to put on the table. Offering just a couple weeks’ pay may not be worth telling the employee, as required, to consult a lawyer and setting out in writing the rights he would surrender by accepting the package. On the other hand, once you exceed a couple months of pay, you’d be foolish not to require a full release of potential claims in return.

On rare occasions, you may not feel strongly enough to move to the termination stage, but you’d nevertheless welcome the employee moving on to the competition. In that case, you can offer a package contingent on his resigning from employment. Typically, the resignation’s effective date is tied to the expiration of the revocation period. Once the employee expresses interest in the package, you have the option to place him on paid leave while the waiting period expires. If he decides not to take the package, he would return to work after the time off with perhaps the only change in status being the exhaustion of some vacation time.

Some Closing Points to Consider

If you offer a severance package to an employee to induce his resignation, be prepared to receive a counteroffer. You should understand that if you alter the deal’s terms, you’re resetting the clock for the 21-day review period. Also, if you dangle a written agreement in front of an employee with the advice to seek counsel, you may be inviting a lawsuit. Indeed, if the terminated employee refuses a severance package, you’re almost certain to hear from his lawyer.

Finally, some courts have held that offered (and refused) severance packages are admissible evidence in subsequent litigation. A jury may deem your offer of money to a marginal or bad-acting employee to be inconsistent with your factual defense at trial.

Bottom line

As we’ve noted, there are some strategic decisions to be made when you’re looking at how you play your cards with regard to letting a problem employee go. Unless you have traveled this path before, you’d be well-advised to consult with counsel before telling a current or former employee to consult with her lawyer.

Bryan R. Cokeley is an Attorney with Steptoe & Johnson PLLC. He contributes to the West Virginia Employment Law Letter and can be contacted at bryan.cokeley@steptoe-johnson.com.

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