Employment Law Attorneys
Top Five Things to Know About Severance Agreements

Top Five Things to Know About Severance Agreements

Parting ways with an employer isn’t always a cut and dry process. Especially if you’ve invested years of your time and ideas to move the company forward. If you’ve recently been let go by your employer and are unsure how to proceed with the severance package you’re being offered, here are the top 5 things you should know about severance agreements and your options.

1.      Have an Employment Attorney Review the Severance Agreement

If you had a medical condition, you would seek the advice of a physician. The same logic should apply when you have a legal situation such as an impromptu termination where the employer provides a severance package. There is a direct correlation between retaining an employment attorney to negotiate your severance package and the amount of the increase in severance pay.  I have seen many people over the last twenty years attempt to negotiate their severance agreements by themselves with little success in the way of increased severance. Employers simply say, “This agreement is a take or leave it deal,” when employees attempt to negotiate the agreement on their own.  An employment attorney can dramatically modify an existing severance agreement to make the deal fair and balanced, including the removal of one-sided non-competition agreements.  The employment lawyer can also increase severance pay by developing legal claims you did not know existed.

2.      If You Want More Money, You Need a Legal Claim

Face it, if you want more money in severance pay from your employer, you need to hire an employment lawyer.  An employment attorney will review your detailed factual narrative and ask very pointed questions to develop legal claims that can be used to increase the amount of severance pay you will eventually receive. The employment lawyer can also diagnose the illegal activity committed by the employer and confront the employer with a sworn affidavit supporting a comprehensive notice of legal claims.  When the employee substantiates his/her case in this manner, the employer often times increases the amount of severance pay the employee will receive under the severance agreement.

3.      You Can Extend COBRA Coverage

An employment attorney will often time the length of the severance pay with the length of the COBRA period. This is a routine provision that most employees do not know they can increase. In fact, you can obtain COBRA coverage for up to 18 months.

4.      Confidentiality is Key with Severanc Agreements

When you receive severance compensation you provide a full release of claims against the employer that is completely confidential.  Employers shield themselves against potential liability and publicity by using broad confidentiality provisions that cover you, your attorney, your financial advisor and your family.  An employment attorney can narrow the confidentiality so that it is only applicable to you, relieving the unnecessary burden on your accountant, attorney and your family.

5.      Legal Fees Paid By the Employer

The employer gave you the severance agreement to review with an attorney. Most employers include a provision that you acknowledge you have been given the opportunity to review the agreement with an attorney.  Then, the employer must pay your legal fees to review their one-sided severance agreement.  The agreement should be modified to include coverage for your legal fees.

If you’re looking to get the most out of your severance agreement and don’t know where to start, contact Carey & Associates, P.C., we concentrate in employment, wrongful termination, discrimination, whistleblowing, and more. Get the severance you deserve. Contact us now!

Are Women Unequal in the Workplace?

Are Women Unequal in the Workplace?

It’s a fact, in the workplace women are seen as unequal. Of course no sane male employee will admit that to you. This is not because he would be politically incorrect in making such a remark, but because of some weird and nondescript force or code (man-code) he feels compelled to adhere to at all costs. (I obviously do not share in this dysfunction).  This phenomenon is real and has a tight hold on the U.S. workforce.  Yes, I could use the word gender discrimination or some similar phrase like unequal pay, but those concepts do not shed light on how to overcome the inequality. Those terms only equate to engaging in litigation, which is a slow, emotionally draining and a financially devastating road to follow.

Focus on pretty woman with colleagues talking in background

At the heart of the pay gap/promotion issue lies two socially inherent obstacles, bias and fear. Men hold the bias, most likely nurtured in them via family upbringing and culture. The bias is simple, men are better than women and thus should be paid more.  This bias is real as represented in the statistics mentioned below.  And women hold the fear, equally nurtured via family upbringing and culture.  Women fear challenging men to get what they deserve.  This is not to say that all men and all women hold these same characteristics, but enough of them do given the current statistics below.

On a positive note, the pay inequality issue may be transforming on its own.  According to the BLS (U.S. Bureau of Labor Statistics (http://www.bls.gov/)), in 2012 women earned 81% of the median wages of men. I presume this applies to working women of all ages up to retirement age.  However, the pay gap is smaller for younger women in the age range of 25-34 where the current ratio is 90%+.  For women in the age range of 45-54, the ratio is 75%, representing a possible age biased toward an older generation of female employees.  The BLS numbers indicate the gender income inequality issue may have a strong generational variable, where younger working women encounter less income inequality in comparison to men.  Pregnancy may play a lesser role in this younger generation, as the CDC reports that the mean age of women experiencing a first time birth is 26. http://www.cdc.gov/nchs/fastats/births.htm) Previous income inequality explanations suggested pregnancy was one of the main culprits, but that appears to be changing. More women are working in the U.S. workforce than ever before, nearly 47% of the workforce is composed of women, and this number is projected to exceed 51% by 2018. (This information is based on 2010 data).  (http://www.dol.gov/wb/factsheets/Qf-laborforce-10.htm).  My opinion is that women should be paid 100% in comparison to men.

Women need a workable solution, not more statistics or more calls to action during the academy awards, which only draws more attention but does not solve the problem.   I have worked with or represented many women either in consultative employment counseling, litigating discrimination cases or contract severance negotiations.  I have mentally collected these work experiences and have some simple yet straight forward solutions to solve the gender pay gap.

Men need to promote more woman based on their performance, not their gender. I am confident women will feel appreciated and incentivized to improve the company bottom line.  That’s what women tell me.

Men need to pay women more based on their performance, not their gender, even if it means paying a wage equal to or higher than those paid to similarly qualified men.  I am confident women will feel appreciated and incentivized to improve the company bottom line.  Again, this is what women tell me.

And, everyone, men and women alike, should be allowed to work a flexible work schedule, which increases employee motivation and production quality for the real work companies want performed.  In my office, we have a flexible work schedule and the work is completed in a timely fashion and everyone, including myself, is happier! The stale and stringent 9-5 work hours needs to be tossed out the window. I have heard too many complaints over the years by clients regarding ridiculous and inflexible work schedules enforced by poorly managed (some FORTUNE 500) companies.

Women need to aggressively self-advocate for promotion and salary increases even at the risk of creating an impenetrable glass ceiling or worse losing their jobs.  Your employment (either at-will or term) is a contract that is constantly being renegotiated every day.  If you do not ask, you will not receive.  By professionally demanding a salary increase and promotion, you force your employer to tell you how they really feel about you and your performance.  If they say no, move on to a company that does appreciate your skills, experience and knowledge.

The bottom line is to become more proactive, assertive and never fear the negotiation to get what you deserve, instead embrace it. This applies equally to us all.

© 2015 Carey & Associates, P.C. www.anthem.mystagingwebsite.com  mcarey@capclaw.com

Top Hat Plans (Supplelmental Deferred Compensation Benefits)

The Employee Retirement Income Security Act (ERISA) subjects employee benefit plans such as deferred compensation arrangements to complex and far reaching rules designed to protect the integrity of such plans and the expectations of their participants and beneficiaries. See generally Mertens v. Hewitt Associates, 113 S.Ct. 2063, 2066 (1993).

Erisa’s coverage provisions, 29 U.S.C. Sections 1003, 1051, 1081, and 1101, state ERISA shall apply to any employee benefit plan, other than the listed exceptions. One of these exceptions, known as a top hat plan, is defined as: “a plan which is unfunded and is maintained by the employer primarily for the purpose of providing deferred compensation for a select group of management or highly compensated employees.” ERISA Secs.201(2),(301)(a)(2), and 401(a)(1).

Top Hat plans are exempt from the participation and vesting provisions of ERISA, 29 U.S.C. Sections 1051-1061, its funding provisions, 29 U.S.C. Sections 1081-1086, and its fiduciary responsibility provisions, 29 U.S.C. Sections 1101-1114, though not from its reporting and disclosure provisions, 29 U.S.C. Sections 1021-1031, or its administration and enforcement provisions, 29 U.S.C. Sections 1131-1145.

Whether a Plan is Funded:

A plan is unfunded where there is no res (or property) separate form the ordinary assets of the corporation. Dependahl v. Falstaff Brewing Co., 653 F.2d 1208, 1214 (8th Cir.1981), cert. denied, 454 U.S. 968 (1981);Gallione v. Flaherty, 70 F.3d 724,725 (2d Cir.1995)(A plan is unfunded where “benefits thereunder will be paid …solely from the general assets of the employer.”); DOL Advisory Op. 81-11A(Jan.15, 1981). In Miller v. Heller, 915 F.Supp. 651 (S.D.N.Y.1996), the court held that the question a court must ask in determining whether a plan is unfunded is: “can the beneficiary establish, through the plan documents, a legal right any greater than that of an unsecured creditor to a specific set of funds from which the employer is, under the terms of the plan, obligated to pay the deferred compensation?” Id. at 660. An executive will need to examine whether the plan documents, employment agreements, and severance agreements contain provisions that can be interpreted specifically or broadly are intended to be funded by the company separately, such as through a trust arrangement.

Whether the Plan Is Maintained Primarily for a Select Group:

To determine whether the participants of an employee benefit plan are a “select group of management or highly compensated employees,” 29 U.S.C. Sections 1051(2), 1081(a)(3), and 1101(a)(1), a court is required to conduct a fact specific inquiry, analyzing quantitative and qualitative facts in conjunction. See e.g. Duggan v. Hobbs, 99 F.3d 307, 312 (9th Cir.1996) (holding that the “select group” requirement includes “more than a mere statistical analysis”); Senior Executive Benefit Plan Participants v. New Valley Corp., 89 F.3d 143, 148 (3d Cir.1996)(considering “both quantitative and qualitative restrictions”).

While plans offered to a very small percentage of an employer’s workforce often qualify as top hat plans, see, e.g., Gallione, 70 F.3d at 726 (0.2% of total Union membership, although this figure represented 22 of 68 Union managers); Duggan, 99 F.3d at 312 (a single employee); Belka v. Rowe Furniture Corp., 571 F.Supp. 1249, 1252 (D.Md.1983)(4.6% of workforce), there is no existing authority that establishes when a plan is too large to be deemed “select.” A “select group of management” could include senior management and high-level executives. See Gallione, 70 F.3d at 728 (all full time Union officers constituted a select group); see also, Northwestern Mut.Life Ins. Co. v. Resolution Trust Corp., 848 F.Supp. 1515, 1520 (N.D.Ala.1994)(“certain key officers” and “certain executives”). An additional factor to be included is how broadly is the plan’s inclusion. If the plan sweeps too broadly, then the likelihood is that it will not be a top hat plan, thus regulated by ERISA. A court will also examine the average salary of the participants in the plan. In the case of highly paid executives, it may be found that the average salary may be double that of all other employees. The operative language “primarily” designed to provide deferred compensation for certain individuals who are management or highly compensated, suggests that it was principally intended to cover management and highly compensated employees. That fact that a small number of employees not falling within this group are covered by the plan, does cause the plan to loose the exemption status as a top hat plan.

Courts also examine the participant’s ability to negotiate the terms of the plan. “Ability to negotiate” is an important component of top hat plan analysis. Courts have found that top hat plans are exempted from ERISA’s substantive requirements, “because Congress deemed top-level management, unlike most employees, to be capable of protecting their own pension expectations.” Gallione, 70 F.3d at 727. Congress approved of a lesser level of regulation for top hat plans “on the premise that the employer’s top-level executives have sufficient influence within the institution to negotiate arrangements that protect against the diminution of their expected pensions.” Id. at 728; see also, Kemmerer v. ICI Americas Inc., 70 F.3d 281, 286 (3d Cir.1995)(“Top hat plans…which benefit only highly compensated executives, and largely exist as devices to defer taxes, do not require such scrutiny and are exempted from much of ERISA’s regulatory scheme.”).

Are the Contributions Really Deferred Compensation:

Whether a plan is maintained for the purpose of providing deferred compensation is a question not addressed in ERISA or the case law. Deferred compensation “generally refers to money which, by prior arrangement, is paid to the employee in tax years subsequent to that in which it is earned,” Michael J. Canan, Qualified Retirement and Other Employee Benefit Plans Section 1.6 (West 1994), and a deferred compensation plan may do little more than “simply delay distribution of cash payments to employees.” Id. at Section 2.4. However, a deferred compensation plan may envisage more; it may, for example, tie deferred compensation to continued performance for the corporation and include covenants not to compete. Id. “The basic idea of a deferred compensation plan is simple: part of an employee’s current earnings are made payable in a future year or spread over a future period…The deferral in the case of an elective plan must specify the period of time and form in which the account is to be distributed…The Plan must defer income to termination of employment.” Susan K. Hoffman, Nonqualified Executive Compensation Arrangements, Top Hat and Excessive Benefit Plans, Advanced Law of Pensions and Deferred Compensation, C922 ALI-ABA 1239, 1241, 1244 (July 1994); cf. Modzelewski v. RTC, 14 F.3d 1374, 1376-1377 (9th Cir.1994)(indicating that “ERISA’s definition of a pension plan is so broad, virtually any contract that provides for some type of deferred compensation will also establish a defacto pension plan, whether or not the parties intended to do so.”).

“The term deferred compensation…refers to specific ‘nonqualified arrangements designed and implemented to postpone the income of either a select employee or a group of employees to some future period. Deferred compensation may be, but need not be, based upon a contractual agreement entered into by an employer and selected employees. Such plans may take the form of a salary reduction or may involve deferring a salary increase or bonus payment. Deferred compensation arrangements are generally established prior to, or at the time of, the performance of service to which the compensation relates. Certain arrangements, especially those providing supplemental retirement income benefits, can be adopted after the service has been rendered.” Andrew Lawlor and Mark Manin, Nonqualified Deferred Compensation for Key Executives, in Employee Benefits Handbook, Section 13-2 (Fred K. Foulkes ed.1982).

An examination of the plan documents, employment agreements, and severance arrangements, may reveal whether the contributions to the plan qualify as deferred compensation.

No Fiduciary Duties Owed Under a Top Hat Plan:

Unlike nonexempt ERISA plans, there is no fiduciary duty owed to plan participants under a Top Hat Plan. If the plan falls under the ERISA exemption, then there is no fiduciary duty on the part of the company or its executives who run the plan.

Reporting and Disclosure Requirements:

A top hat plan, like all other ERISA plans, are required to file registration statements and annual report (also providing annual report and summary plan description to plan participants) with the US Department of Labor and the Internal Revenue Service. However, this requirement can be met merely by filing a short statement with the Secretary of Labor and providing plan documents to the Secretary of Labor upon its request. See 29 C.F.R. Section 2520.104-23(b)(prescribing alternative method of compliance); see also, 29 U.S.C. Section 1030 (authorizing Secretary to promulgate alternative methods of compliance for qualifying plans).

Top Hat Enforcement Requirement Under ERISA:

Although a deferred compensation plan falls under the Top Hat exemption, the plan participant can still enforce his rights under the plan pursuant to ERISA. Top Hat plans are not exempt from the administration and enforcement provisions under ERISA. 29 U.S.C. Sections 1131-1145. If the plan fails to pay out under the deferred compensation arrangement, the executive may seek to recover benefits due and past due under the plan. See Anweiler v. American Elec. Power Service Corp., 3 F.3d 986, 992 (7th Cir.1993)(distinguishing between theories underlying fiduciary duty claims and basic claims for benefits under a covered plan). Subchapter I, Subtitle B, Part 5 of ERISA governs administration and enforcement. 29 U.S.C. Sections 1131-45. Section 1132 provides a cause of action either to enforce the substantive provisions of the Act or to recover benefits due or otherwise enforce the terms of a particular plan. 29 U.S.C. Section 1132. See Barrowclough v. Kidder, Peabody & Co., Inc., 752 F.2d 923, 935-37 (3d Cir.1985)(holding that an unfunded Top Hat deferred compensation retirement plan is subject to ERISA’s enforcement provisions).

Stock Options Are Not Extinct, Yet

In response to the recent public outcry over corporate scandals involving executive fraud and malfeasance, the Securities & Exchange Commission (SEC), NYSE, Nasdaq, and the Financial Accounting Standards Board (FASB) are reviewing proposed rules whether to expense stock options granted to employees. The primary concerns are: creating better performance incentive measures and reducing unjust rewards for corporate executive malfeasance; enhance shareholder value/return in the midst of current dilution practices and improve overall corporate governance practices.

The SEC released a report on July 25, 2003 examining in part this issue in an effort to reform accounting standards, pursuant to Section 108(d) of the Sarbanes-Oxley Act of 2002. FASB will soon meet to review comments by its own Option Valuation Group on whether to expense stock options. (WSJ July 30, 2003) The FASB panel is comprised mostly of academics, and will be proposing a flexible approach and advised FASB against adopting any single model for companies to use when valuing employee stock options.

According to the July 30, 2003 WSJ article, “the vast majority of companies in the Standard & Poor’s 500 index use the Black-Scholes mathematical model, according to Bear Stearns. But Black-Scholes was designed to price market-traded stock options, not employee stock options, which can’t be traded in the open market. Some companies then try to adjust their Black-Scholes estimates by taking into account such factors as how long employees are expected to hang on to options. Another way to calculate options expenses-the binomial model-uses a different mathematical formula and can be easily adjusted to account for more assumptions such as the possibility that employees may exercise their options as soon as they are eligible, instead of holding on.”

The common concern amongst proponents of a rule expensing stock options is this will avoid shareholder dilution. In the past, companies granted millions of stock options to employees, many who became instant millionaires during the recent dot com bull market. As many as 10 million employees held stock options in 2000 that translated into more than $1 trillion in employee wealth, according to the National Center for Employee Ownership. Some suggest this practice was a factor in the dot com crash of 2000-2001, because corporate earnings were inflated and did not account for stock options as an expense on balance sheets. For example, employees of Microsoft and Priceline.com reaped huge rewards when cashing in on their stock options. At least one executive in the HR Department at Priceline.com was provided with underwater stock options that resulted in an estimated $4 million award when the options were exercised. It remains unclear whether the stock option grant was based on realistic performance measures.

On July 30, 2003, the WSJ reported that companies are now awarding few stock options to employees. “A survey this month of 33 large companies by Mercer Human Resource Consulting found that three-quarters are making changes in their stock-option and other long-term incentive plans. Of those, 64% are reducing the number of options granted. More than half the companies are cutting the number of employees eligible to receive options.” Following the current trend, employees can now expect far fewer stock option grants, both statutory and non-statutory options.

Corporations are turning to other forms of incentive compensation such as restricted stock. On July 10, 2003, the WSJ reported that Microsoft stop issuing stock options altogether in favor of awards of restricted stock. According to the article, “the ‘restricted’ in restricted stock refers to the fact that employees can’t sell the shares until a certain amount of time passes, often three to four years, and that employees may have to forfeit the shares if they leave.” In the past restricted stock was commonly reserved for top executives, but many companies are now evaluating restricted stock as a more conservative measure of rewarding employees and an effort to enhance shareholder value (restricted stock is expensed). Some suggest Microsoft’s move to award restricted stock was a major shift across industry sectors in how many employees will be compensated in the near future.

The following companies reported issuing restricted stock, instead of awarding stock options. Last year Jones Apparel Group awarded several hundred managers restricted stock. With regard to stock options, a company spokesperson stated “the awards were much smaller …as matter of course you would probably see that a little tighter.” Rohm & Haas Co. began awarding restricted stock instead of stock options to lower level executives, and reduced the percentage of eligible employees who receive awards to 75% down from 85%. Bank One Corp., Dell Inc., Yahoo Inc., Siebal Systems, Inc, Citibank have all followed suit in reducing the amount of stock option grants to employees. (WSJ July 30, 2003).