LEGAL: Don't Get Stung by Severance Deals

Waste handling companies and their employees are hardly immune from today's general economic sag. Wobbly customers and dwindling revenues make for difficult times in the workplace. To keep their businesses afloat, firms are trying to take advantage of every available cost-cutting device, and employees are feeling the sting.

An East Coast hauling firm laid off two drivers, offering them one month's severance pay for each year they had been with the company. The deal, however, had an important wrinkle: The employer would disburse the severance pay in installments beginning 60 days after termination. If the employees started working for another company — whether or not in the waste industry — the payments, if underway, would end.

Harsh terms? Maybe. Legal? Yes.

Unless an employment contract or an employee handbook specifically provides for severance pay, no employer is required to offer it. Only a few states — Maine, Massachusetts, Pennsylvania and Rhode Island — mandate severance pay for laid-off workers. However, the obligation applies to limited situations, such as manufacturing plant closings.

Still, employers commonly make some kind of payment when workers are laid off, except perhaps to those who are fired. The terms vary considerably from company to company, even within the same industry. But typically, payments amount to one or more weeks' pay for every year of an employee's tenure. The employee handbook or personnel manual usually spells out the contours of this benefit. This includes the circumstances under which the benefit ends — for example, when the former employee gets a new job, assuming such information is readily discoverable.

“The purpose of severance is to eliminate hardship for a former employee, so if you've got a new job, you no longer have a hardship,” says Philip Schwartz, a Washington, D.C., lawyer who represents management.

Most companies are motivated to offer severance “to engender a little bit of goodwill [among departing employees] so they won't sue them,” says attorney Lynn Bernabei, who handles employment disputes on behalf of workers. Often, she says, an employer's openness to paying severance depends on the departing employee's willingness to sign a claims waiver and a general release of liability in favor of the company.

A waste hauling firm operating in several counties in adjoining states recently closed one of its offices and laid off a supervisor and several subordinate employees. The company provided the ex-manager with severance pay on the condition that he forgo seeking new employment until the company decided either to re-open the office or to offer him a position replacing a supervisor at a site elsewhere in the company's service area. He willingly accepted.

Difficulties arose when, several months later, the company called him back to work at an out-of-state location that doubled his commuting time to and from work. To make matters worse, the company paid him as if he were a new supervisor, ignoring his former salary level and reducing his sick leave and vacation allowances. Admittedly, he did not negotiate or discuss his duty station, pay and benefits with the company when he was laid off. He just assumed things would pick up pretty much where they left off.

What recourse does the supervisor have?

A company lawyer simply would say that he should have asked questions and sought commitments in writing when the company handed over the severance pay with strings attached. Then, if the employer's promises were still too vague, he might have declined the offer and aggressively pursued other job opportunities.

On the other hand, an argument can be made that a company's oral promises regarding future employment conditions — especially if the employee was induced to postpone or abandon a job search — are legally enforceable and implicitly include an expectation of returning at the same salary and benefits level, even if not at the same location.

What are his damages?

The employee would have to prove that, if the company had not strung him along, he likely would have landed a job with a compensation package substantially greater than what the company was offering. Not an easy task.