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What do you know about offering severance pay?

On Behalf of | Nov 19, 2021 | Business & Employment, Employment, Employment Law |

There may come a time when you must lay off some of your employees. If that happens, do you know what to consider for their severance packages?

Points to ponder

There is no law in Minnesota requiring that employers pay terminating or resigning employees a severance. Some employers in enticing executives to join their company may have negotiated an employment agreement that includes a severance provision; other employers may be bound to offer a severance by the terms of a collective bargaining agreement with their union employees. For employers not required to provide a severance, they may offer a severance to give the employee a pay replacement bridge from being terminated to finding their next employment.In other words, it’s a way for the employer to soften the blow the termination may cause.

When employers offer to pay a severance, the employer should condition payment of the severance upon the employee agreeing to waive the right to bring any claims against the employer. In order for the waiver to be legally enforceable, the written severance agreement needs to include certain provisions as defined by state and federal law. For example, to waive a federal age discrimination claim, the employee needs to be given at least 21 days in which to decide whether to sign the agreement (or 45 days if the severance is offered as part of an exit incentive or other employment termination program offered to a group or class of employees). Federal law also requires that employees be advised in writing to seek legal counsel to review the agreement. State and federal law also give employees a right, after signing the agreement, to rescind their signature to the agreement. Because of all the specific requirements for waivers of claims, it is highly advisable for employers to contact their own attorney for assistance in drafting the appropriate documents.

For the waiver to be enforceable, the severance paid must be something more than the employee is otherwise entitled.  For example, if the employer has a policy that all PTO is paid out at termination, the consideration for the severance cannot solely be the PTO payout.

As far as how much severance to offer, some employers use a formula, such as 1 week or 1 month for every year of service, or a percentage of annual salary. In potentially volatile circumstances, or with particularly high-profile employees, the amount may be higher, or heavily negotiated.

Some employers offer to pay the employee’s COBRA for a certain period of time, or to offer job placement/resume writing assistance. Employers are cautioned against “keeping the employee on the health plan” during any severance period; instead, once the employee is terminated make sure to follow proper COBRA procedures.

Please contact the employment attorneys at Quinlivan & Hughes to help you determine if a severance should be offered, and if so, at what amount and to prepare the enforceable severance agreement and waiver.

Established more than 95 years ago, Quinlivan & Hughes ranks among the oldest and largest law practices in Central Minnesota. The full-service law firm has growing legal teams in the areas of employment law, business law, government law, insurance defense, trust and estate planning, and general litigation. Learn more at Quinlivan.com.

 

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