State:
December 19, 2023
4th Circuit Lays Out Risks for Employers Using Severance Plans in Layoffs

by Marcus D. Black

For a Limited Time receive a FREE Compensation Market Analysis Report! Find out how much you should be paying to attract and retain the best applicants and employees, with customized information for your industry, location, and job. Get Your Report Now!

Employers looking to use severance plans when conducting layoffs should heed the lessons learned in a recent decision from the U.S. 4th Circuit Court of Appeals (which covers employers in Maryland, North Carolina, South Carolina, Virginia, and West Virginia). The appeals court considered three questions: whether the employer validly eliminated its severance plan before discharging the employees, whether certain employees who signed a stay bonus letter agreement (SBLA) waived their claims against the employer, and whether four employees received adequate notice under the Worker Adjustment and Retraining Notification (WARN) Act before they were discharged.

Elimination of Severance Plans

In answering whether Bristol Compressors International, LLC, validly eliminated its severance plan before laying off employees, the 4th Circuit noted the severance plan was considered an unvested employee benefit plan under the Employee Retirement Income Security Act of 1974 (ERISA). As a result, the company had the right to amend or eliminate the plan as long as it complied with the written plan’s formal procedures.

In this case, if Bristol Compressors wanted to eliminate the severance plan, the procedures required the board of directors to have human resources (HR) execute its decision. The board voted to eliminate the plan, but HR didn’t take further action. The appeals court therefore concluded the company didn’t comply with the procedures set forth in the severance plan, so its elimination was invalid.

Waiver of Claims Under SBLA

In determining whether certain employees waived their claims against Bristol Compressors by signing the SBLA, the 4th Circuit looked to Virginia contract law, although the same principles likely apply in other jurisdictions. The court reasoned that even though the amounts employees were to receive under the SBLA were less than what they would be entitled to under the WARN Act, the disparity itself didn’t establish the “gross disparity” required to find an agreement to be unfair under Virginia law.

Furthermore, even though the SBLA had statements that could be read as evidence of bad faith or appeared to prove disproportionate bargaining power, these terms were countered by other language granting employees seven days to consult with an attorney and sign the agreement.

The court found the SBLA wasn’t unfair, so several employees waived their right to participate in a lawsuit by signing the SBLA.

Inadequate WARN Notice

Lastly, the 4th Circuit considered whether four employees received adequate notice under the WARN Act before they were discharged. Under the WARN Act, employers are required to give employees 60 days’ notice of a mass layoff or plant closing. It also requires employers to give an “additional notice,” however, if the scheduled layoff or plant closing date is postponed.

Furthermore, if the postponement is for 60 days or more, the “additional notice” is treated as a new notice subject to the regulations of the initial notice.

On the other hand, if the postponement is for less than 60 days, then employers are required to give notice as soon as possible, referring to the initial notice, the date the action was postponed, and the reasons for the postponement.

Bristol Compressors first notified employees on July 31, 2018, that the plant was expected to close by August 31 and that layoffs could start immediately. The next day, however, it told its employees the plant was scheduled to close by September 30, 2018. The four employees in question weren’t terminated until October 19, and the plant didn’t officially close until November. The 4th Circuit concluded the company was required to give employees “additional notice” under the WARN Act.

Also, the appeals court rejected the district court’s finding that the inadequate notice under the WARN Act didn’t prejudice the four employees because they were employed for more than 60 days after the initial July 31 notice. According to the 4th Circuit, failing to give notice under the WARN Act is different from cases in which an employer gives mistaken information to employees and is then excused from liability for the mistake.

Excusing an employer from liability for failing to give notice under the WARN Act, according to the court, would render the WARN Act’s regulations meaningless. Messer et al. v. Bristol Compressors International, LLC.

Takeaway

This case illustrates some of the hazards employers may face when implementing a reduction in force (RIF) that includes severance plans. Before implementing an RIF, consider other related severance plans, confirm the enforceability of any waiver, and ensure compliance with the WARN Act’s notice provisions.

Marcus D. Black is an attorney with Steptoe & Johnson PLLC in Charleston, West Virginia. Marcus’ psychology background and interest in the social sciences is an asset to his clients as is his reliability and thoughtful and unique resolutions to their employment issues. You can reach him at 304-353-8121 or marcus.black@steptoe-johnson.com.

Featured Free Resource:
Cost Per Hire Calculator
   
   
 
 
CT-WEB06
Copyright © 2024 Business & Legal Resources. All rights reserved. 800-727-5257
This document was published on https://Compensation.BLR.com
Document URL: https://compensation.blr.com/Compensation-news/Performance-Termination/Layoff/4th-Circuit-Lays-Out-Risks-for-Employers-Using-Sev/