June 22nd / 24th, 2007
"Severance Pay Should Be Mandatory"
In sports, it is not uncommon for a team to fire its coach before his
contract expires. No big deal. The owner simply pays off the contract.
In the public sector, contract buy-outs are not always feasible. That’s
why, for example, Davidson County probably agreed to pay its school
superintendant $10,000 a month for one year after his resignation.
And of course, in the corporate world, CEOs often bail out early with golden
parachutes worth millions of dollars.
Then there’s the rest of us in this post-NAFTA world. We’re the ones who
get laid off by the greedy employer who moves his plant to Honduras. The law
says we’re entitled to be compensated for hours worked and vacation earned,
but that’s it. No benefits, no golden parachute. That’s because thanks to
the Fair Labor Standards Act, employers are not required to pay severance.
At the risk of sounding anti-business, that Fair Labor arrangement ain’t so
fair, and needs to be changed. I mean, even in Peru, employers have the
legal obligation to compensate workers who are dislocated through no fault of
their own. Not so, here in the land of the free.
To add insult to injury, many companies who do offer a severance package, do
so with strings attached. Case in point, the Greensboro News & Record, who
last week laid off 41 people. As if being fired without cause wasn’t bad
enough, these unfortunate souls were then forced to sign a quasi gag order if
they wanted to receive a penny of severance pay. That then begs the question,
if the News & Record didn’t do anything wrong, or didn’t feel guilty about
something, why are they so worried about what their former employees might
say?
Experts at Resume & Resource.com tell displaced workers to seek legal advice
before signing any severance agreement. “If an employer asks you to sign
papers promising that you’ll never sue them (or speak to the media) in order
to receive severance pay, beware. Chances are …he or she may feel they have
wrongfully dismissed you.”
And, laid-off workers over the age of 40 have even more reason to seek legal
counsel. That’s because federal law provides certain protections to us
older folks. According to Fortune Magazine’s Anne Fisher, you are legally
entitled to take twenty-one days to think over a severance offer before signing,
and, even after signing it, the law gives you seven more days to change your
mind.
So let’s suppose that the FLSA was amended tomorrow, making severance
mandatory. What would be a fair amount for compensation? Some say two weeks
salary for every year worked would be a reasonable severance. That means if you
made $1,000 per week, and were laid off after ten years of service, you would
be entitled to $20,000 in severance pay.
How likely is it that the Fair Labor Standards Act would ever change?
Perhaps more than you think. The Lee Hecht Harrison Company polled just over one
thousand Human Resource officers, and found that about half of them are now
voluntarily offering severance packages commensurate with the 2 week per year
formula. And 49% of them now offer severance benefits to part time employees,
too.
These trends are encouraging, but Lee Hecht Harrison fails to report just
how many of those severance packages have conditions attached to them that
threaten displaced workers, and throw them into a moral dilemma. Workers who
have just been laid off may choose to provide security for their family by
accepting a severance deal, but, in doing so, they might also be giving up their
right to litigate, or freedom to speak in the process.
At any rate, severance pay shouldn’t be considered as hush money. It is
remuneration that the employee earned for his or her loyal service over many
years, and it should be paid unconditionally. Besides, anyone treated fairly
(and with dignity) during the negotiation process would have little reason to
sue or speak ill of the employer after the fact.
Employers who care more about the bottom line than they do their employees
must be made to dig down into their huge profits and share the wealth with the
workers who made that wealth possible in the first place.
And so, let’s demand that Congress amend FLSA, and make severance pay for
displaced workers mandatory, with no strings attached. It’s not much of a
parachute for people thrown out of work, but it might just ease their fall a
bit.
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