Separation Agreements, Severance Pay, and Unemployment Claims
Nov. 30, 2022
As economists continue to speculate about the possibility of a global recession, many employers are already looking for ways to reduce costs. Decreases in corporate expenditures often include layoffs in the workforce, and we have seen the recent news regarding significant staff reductions by tech giants Twitter and Facebook. Amazon, another of Austin's largest employers, also announced a pause on new hires in their corporate workforce. As companies across the nation begin to adjust their bottom lines and consider reductions in their workforce, employers should ensure that they understand state laws regarding workplace separations.
Employers utilize employee separation agreements to define the terms of a work separation between the company and the employee. While employers cannot force their employees to sign a separation agreement, if the employee agrees, an employment agreement will help to protect the company from legal action resulting from employee termination.
Employment separation agreements state that in exchange for compensation, the employee agrees not to file specific claims, such as claims for unemployment, against the employer. This legal agreement drafted by the company and signed by the employee defines the benefits the employee may receive in the event they are laid off. Natalie Lynch, one of Austin's foremost labor and employment lawyers and the founding member of the Lynch Law Firm, says,
"Because of the uncertainty companies face now due to a slowing economy, employers need to know how the law addresses layoffs. For example, the Worker Adjustment and Retraining Notification Act or WARN Act may come into play when an organization announces a staff reduction. Per Federal law, companies with one hundred or more employees must provide a minimum of 60 days advance written notice of mass layoffs or a site closing. When considering possible layoffs, employers should also contact an experienced labor and employment attorney to review the terms of their employment agreements and severance packages."
Severance pay comprises employer-provided compensation paid to a departing employee according to the terms of the organization's employment separation agreement. While not mandated by state law, some employers offer severance packages to laid-off employees or those whose jobs are eliminated due to downsizing. Severance pay can also be a goodwill gesture by the employer to provide benefits to employees who retire, resign, or are terminated. While the primary advantage associated with severance pay is a portion of the employee's compensation for a specified period, these packages may also include extended health insurance benefits, bolstered protections for the company (like non-compete and non-disclosure terms) or assistance in securing a new job.
If an employee does file an unemployment claim, the key to predicting the result is the circumstances under which the employee left the organization.
How the separation occurred will determine how the unemployment claim or lawsuit will be handled.
Voluntary vs. Involuntary
The benefits that your company provides will depend upon the circumstances in which the employee terminated their employment, so it is essential to identify if the work separation was voluntary or involuntary:
· Voluntary Workplace Separations
Voluntary separations include instances where the employee resigns, retires, or abandons his or her job. In these instances, the employee has exerted more control over the separation than the employer. In instances where separation was voluntary, the employee initiated the separation, and the employer did not coerce the employee into resigning from their position.
· Involuntary Work Separations
Separations are considered involuntary when the employer initiates the separation. Examples of involuntary separations include layoffs, the end of a temporary position, termination for cause, forced retirement, and separations that occur by mutual agreement. Employers initiate a work separation by issuing an action that informs the employee that the terms of their employment are over as of a specific date. In these situations, the employer has more control than the employee regarding the timing of the separation.
The Effects of Voluntary vs. Involuntary Work Separations
Voluntary Work Separations:
· According to the Texas Payday Law, an employee who leaves an organization voluntarily must receive their final paycheck no later than the next regularly scheduled payday following the date of their work separation.
· When an unemployment claim is filed, the claimant who voluntarily left their employment must prove they had cause to leave their position.
· Benefits received by an employee who voluntarily leaves their position with the company will depend upon the terms of the company's benefit plan.
Involuntary Work Separations:
· According to the Texas Payday Law, an employee who leaves an organization involuntarily must receive their final paycheck no later than six calendar days following their last day of employment.
· When an unemployment claim is filed, the employer that initiated the work separation must prove that the misconduct connected with the work was the reason for the employee's termination.
· Involuntary work separations may affect post-termination company benefits. Benefits may be reduced or denied if the employee's termination was for cause. Under COBRA, employees terminated for gross misconduct are not ineligible for the continuation of coverage under the company's health plan.
The Legal Doctrine of Employment at Will
The legal doctrine of "Employment-at-Will" provides that neither an employer nor an employee is required to give notice or advance notice of termination or resignation in the absence of a contract to the contrary. Simply stated, employers can terminate employees at any time for any reason. There are, however, certain exceptions to the doctrine. For example, employers cannot terminate an employee based on discrimination. This means the employee cannot be fired because of race, religion, sex, national origin, age, disability, citizenship, pregnancy, or genetic information. Additionally, employees cannot be terminated as an act of workplace retaliation. Most states across the U.S., including Texas, adhere to the principles of the employment-at-will doctrine.
Questions About Workplace Separations?
If you have questions about workplace separations, call the experienced labor and employment law attorneys at the Lynch Law Firm for a free consultation. The attorneys at the Lynch Law Firm can help you navigate the complexities of your legal dispute from inception to resolution.
Schedule a Consultation with the Lynch Law Firm Now
If you are an employer seeking to resolve a labor and employment issue, protect yourself, your employees, and your business by contacting the Lynch Law Firm now. Email us or call 512 298 234