Arizona law on severance is a little more complicated than other states’. Here are seven severance tips for Arizona employers managing larger workforces.
#1. When must I give a severance package?
Severance can diffuse the shock from a layoff or firing.
Arizona does not require employers to provide severance packages but those who do must provide them to all eligible employees.
You might be legally required to provide severance to former employees if you led them to believe they would be paid. This can happen when:
- A severance promise is written in a contract
- Such a promise is documented in an employee handbook or personnel policies
- In an oral promise of a severance package to an employee
- There is a history of providing severances to others in the same position
#2: Why should I provide a severance package if I’m not obligated?
Severance packages can take a little of the sting out of losing a job and defuse angry employees.
Even though you may not have a legal obligation to provide a severance package to a former employee, it may be in your best interests to do so.
Severance packages are offered as a way to alleviate the bad news of being fired or laid off. They usually make employees feel like they have been treated fairly. A disgruntled, angry former employee is more likely to sue for wrongful termination, which can result in high litigation costs and disruption to normal business.
Also keep in mind that a disgruntled former employee is more likely to make nuisance reports to various state and federal agencies. Offering a severance package can help reduce the likelihood of being sued or having to deal with such headaches.
#3: What should I include in a severance package?
You are not required to include anything in particular in a severance package. The following are commonly found in them:
- Pay: Some amount of pay is usually provided. This is usually the most important part of a severance package.
- Insurance benefits: Sometimes employers choose to continue to pay for insurance benefits for a certain period of time.
- References: You may want to come up with a reference with your former employee that s/he can use to obtain future work.
- Outplacement program: An outplacement program provides advice on resume writing, practice interviews, counseling on career goals, and help finding jobs.
- Promise to not contest unemployment claims: A fired employ is allowed to file a claim for unemployment compensation provided s/he was not fired for serious misconduct. An employer is allowed to contest this claim. You can include a promise that you will not contest this claim in a severance package, which will increase the odds that the employee will receive benefits.
#4: Clearly state the rights the employee is waiving in the release agreement.
Release, or separation, agreements are used to protect businesses from malicious actions by former employees. They are often used with severance agreements.
Agreements should state that the employee waives all rights to sue you for claims arising out of the employment relationship, including the termination of that relationship. You can also include that the employee may not encourage or assist others in filing suit against the company.
Make sure the release is specific enough to prevent any later claims that the employee didn’t know what it covered.
#5. Give the employee a reasonable amount of time to sign.
This usually means you should give the employee at least 21 days to decide whether to sign a release.
#6: Avoid any appearance of coercion.
A court will not enforce a severance or release unless the employee’s decision to sign the release is voluntary and free of coercion.
If you threaten or strongarm your employees to get them to sign the release, you can expect the judge to throw the release out of court. At minimum, you can expect a vigorous legal challenge.
#7. Pay special attention to employees who are age 40 and older.
Workers who are 40 years of age or older are protected by a federal law, the Older Workers Benefits Protection Act (OWBPA). This law dictates what you must include in the release.
Among other terms, you must give older workers 21 days to review the release and seven more days to revoke the agreement if they change their minds. Also, you must advise them in writing to consult a lawyer.
If you are considering a severance package or have questions about separation issues, please contact my office to schedule a consultation.