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March 12, by theemplawyerologist 1 Comment Last week we looked at whether your severance arrangement might in reality be an ERISA severance plan.
Click here if you missed it. That may not be a bad thing, though. Alternatively, why might it be better not to? A formal severance plan with top benefits could be part of the package used to entice those candidates. Yes, though it could mean that WW will then be left the potentially arduous task of negotiating possible severance packages every time it either is looking to entice top talent or when it has to let employees go—and a company undertaking risky ventures might go through phases where it has to terminate more than a few employees.
In this type of scenario, WW would then be running the risk of discrimination claims individual negotiations result in significant differences in the severance packages of similarly situated employees.
In fact many companies do exactly that. For example, WW may want to ensure that its officers do not work for competitors or start a competing business for two years after termination. Depending on the restrictive covenant, those officers may effectively be unable to work for that entire time.
The severance package will have to be sufficient to justify the restrictions. Under a formal severance plan, there could be different packages offered to different groups of people meeting certain eligibility criteria.
Why do I need to create a plan, subject to potentially stringent federal laws? You may still want to do that. Perhaps the biggest advantage to an ERISA plan is the degree of deference you will receive if any of your terminated employees should file a claim against you regarding severance.
If you have an ERISA plan and you comply with reporting and disclosure requirements, you may benefit from some very employer-friendly provisions. That procedure usually involves a plan administrator making some type of determination. The employee cannot file suit before following that procedure.
The answer to that will depend in part on whether you have a written severance agreement, and will largely depend on specific facts. If you do not have a written agreement, the court could still find that you have an implied contract, and can interpret your behaviors and past practices to determine your obligations.
If you do have a written agreement, the court will start by applying contract principles — in accordance with the laws of the state in which the dispute arose, unless your written agreement stipulates otherwise. These cases will generally be in state court and will be heard by a jury.
Essentially someone else could end up deciding your intentions and obligations. Your wishes or determinations will not receive deference from the court.
On the other hand, if you use severance agreements without creating an ERISA severance plan, you will not need to designate and possibly hire a separate person to administer a written plan. You will not need to determine eligibility criteria, and, at least in theory, you might have more flexibility in tailoring severance packages for departing employees—as long as you make sure your packages do not discriminate against similarly situated employees in classes protected by anti-discrimination laws.
Put your plan in writing; Specifically state in the plan that the Plan Administrator has broad discretion in administering and interpreting the plan; Clearly set forth your dispute resolution procedures; Consult with and have an ERISA attorney assist you in constructing and writing the plan and ensuring its compliance; Comply with all reporting and disclosure requirements; If you do not want your severance arrangement subject to ERISA, you should: Click here to download my webinar on Making sure your criminal background checks are legally compliant.
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Stop! Is there a genuine market for your idea? Last week we looked at whether your severance arrangement might in reality be an ERISA severance plan. Click here if you missed it.
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More and more professionals. Few areas of business attract as much attention as new ventures, and few aspects of new-venture creation attract as much attention as the business plan.