Better to be prepared | Tough times up the probability of layoffs. Here's what you should do before issuing a pink slip.
Severance may sound like a dirty word in the workplace today, especially in the current economic slump. Employees do not want to think about losing their jobs and employers are hesitant to draw attention to the prospect of a reduction in staff. But, according to Robert Bower Jr., an employment lawyer with Portland-based Norman, Hanson and DeTroy, having in place a well-crafted severance agreement can serve a company in good times and bad.
Severance agreements
Rick Dacri of the Kennebunk human resources consulting firm Dacri & Associates, who is also president of the Human Resources Association of Southern Maine, agrees that a severance agreement should be company policy before a rift develops between two parties. “It sends a signal to the existing workforce that if we have to make a tough decision and let people go, we are going to do it in a manner that is respectful and in a manner that protects them the best we can,” he says.
At its core, an agreement contains many of the same features, whether it is invoked for the termination of a single employee or for a larger scale reduction in force. While there is no one-size-fits-all document, Bower says there are certain elements that serve as the foundation of any successful agreement.
Compatible personnel policies
First, it is critical to follow the company’s personnel manual with respect to severance pay. Making sure that documents addressing employee termination are complementary, not conflicting, is the first step toward making an agreement effective.
Legal releases, claims, waivers
Next on the agreement checklist, Bower says it is important to make sure to include a complete release of all claims that could lead to a dispute in the future. From the employer’s perspective, the severance agreement is most valuable for its waiver of claims that could otherwise take them to court. When layoffs result in terminating protected-class individuals, it is critical to include all federal and state statutes that govern the employment relationship, from age to gender discrimination.
Payments
The most variable element of a severance agreement is the pay and consideration afforded to the separating employee. While an employer has no pre-existing obligation to provide severance pay, companies that do so should be very specific about what is being offered. Employers should lay out whether they will offer a weekly check for a certain number of weeks or a lump sum. In addition, an employer should be specific about whether they will be withholding tax from the check or not. Bower says, “We recommend that you do withhold income tax and the other appropriate employer taxes.”
Health insurance
Continuity in health insurance is a major concern for separating employees. According to Bower, it is important to have a conversation with the health insurance provider to understand what can legally be provided. Employers must also know whether their organization is within the threshold that requires COBRA at the time of separation.
Property, confidentiality
In any agreement, Bower recommends a clause that addresses the return of all employer property. There may need to be a statement that “the employee understands that he is in possession of confidential employer information and he agrees not to disclose that confidential information,”says Bower.
The ultimate goal of a severance agreement is to make the separation process smooth and equitable for both the employer and employee. Dacri says that especially during this economic downturn, communication is critical from the top of the organization down to supervisors. “If we are doing well, let’s reassure our employees. If we are not, we need to tell our people about the plan that we have in place,” he says.
Once termination becomes a reality, Bower says a well thought-out communication clause within the agreement itself is a good way of alleviating ambiguity over how the relationship with the separating employee will be identified to third parties.
Reduction in force
While unpleasant, a reduction in force is sometimes inevitable. Bower notes that the severance agreement is just one piece of the puzzle. He works with organizations to develop what he calls “reduction in force decision-making templates.” Just like the severance agreement, these templates should be built into a business long before the organization contemplates a reduction in force. “The companies that do this best have a constant process of ranking their employees based on performance,” Bower says.
Outplacement assistance
In a situation where a reduction in force is taking place, the ability to provide outplacement assistance can help employees move from the emotion of a job loss to an effective job search. Dacri says that “most employers understand that if an employee is suddenly without a job, without any kind of severance, without any kind of job assistance and really up against a wall, they get angry and when they get angry, they take action.”
A fair severance agreement can alleviate much of the risk involved in undertaking a reduction and at the same time serve to reassure employees. While it is important to have an agreement on the books, no matter how well-crafted, a severance package is only effective if it is up to date. When it comes time to invoke the agreement, Bower explains, a company should have their attorney review the situation and agreement before finalizing any arrangements. “I’m not trying to drum up business, but an hour or two of attorney time compares very favorably to tens or hundreds of hours in litigation,” he says.
Rebecca Lazure, a writer in Baileyville, can be reached at editorial@mainebiz.biz.
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