HOW TO PAY TO MAKE IT GO AWAY It may seem strange to some dealerships to pay an employee to stop working for them, but severance has become a standard part of many employee exit plans. A severance package provides departing employees some degree of financial stability as they transition to their next job while giving the dealership legal protection against allegations of wrongful termination and other claims arising during the former employee’s time with the dealership. In addition, a severance agreement typically includes protocols for how the former employee and dealership will act going forward, such as by including confidentiality, non-disparagement and no re-hire provisions. To be effective, a dealership must consider several factors when drafting compliant and enforceable severance agreements. 1. WHAT IS A REASONABLE SEVERANCE AMOUNT? There is no requirement to pay severance generally, and there is certainly no requirement as to the amount of severance a dealership must pay if it chooses to do so. Still, most employers tie severance to the employee’s position and tenure with the company. For example, a dealership may choose to pay two weeks of the employee’s average earnings per year of service. If the employee held a management or other key position, the dealership may choose to pay an additional amount. And, a dealership may modify its severance formula according to the reason for separation, such as whether for cause, reduction in force, voluntary resignation or retirement. The dealership must simply be able to provide a legitimate, business reason as to why one employee was offered a different severance package than another in order to defend against claims of discrimination or favoritism. 2. CAN AN EMPLOYEE SUE THE DEALERSHIP AFTER RECEIVING SEVERANCE? Most severance agreements include a general release precluding the former employee from suing the dealership over claims that may have arisen during the employee’s employment, including the separation itself. These releases must, however, include particular language. There are some claims that cannot be released in a private settlement, such as claims for unpaid wages under the Fair Labor Standards Act (FLSA). Likewise, other claims — such as those arising under the Age Discrimination in Employment Act (ADEA) and Older Workers Benefit Protection Act (OWBPA) — require a 21-day consideration period and a 7-day revocation period. Where the severance is being provided in connection with a group lay-off or exit incentive plan, the consideration period may be lengthened to 45 days. Dealerships should therefore consult with legal counsel when drafting release provisions. Recent Developments in Dealership Severance Agreements BY MATTHEW SIMPSON AND JONVIEVE HILL FISHER PHILLIPS THE GENERATOR 18
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