April 3, 2013
By Wade W. Herring, II, HunterMaclean
Conventional wisdom holds that an employer owes a departing employee two weeks notice, or separation pay, or both. Once again, conventional wisdom is wrong. Georgia employers have no legal obligation to offer or grant separation pay to an employee who is leaving the company, whether voluntarily or involuntarily. The reason for separation—the employee’s resignation, an economic lay off, or a for-cause termination—is irrelevant.
To be sure, the federal Fair Labor Standards Act (FLSA) that governs wage/hour law requires an employer to pay its employees for all hours worked. The FLSA, however, does not require separation pay.
Likewise, no Georgia law requires the employer to pay separation pay to departing employees. (The question of unemployment benefits awarded through the Georgia Department of Labor is a separate question beyond the scope of this article.) Georgia employers retain broad discretion about what benefits to grant or deny employees, absent a written employment contract. To underscore the point, offer letters and employee handbooks are generally not employment contracts.
If an employer’s handbook policies provide for separation pay, then the employer should honor the policies’ requirements. On the issue of benefits, some Georgia case law suggests that the handbook is an implied contract. Even so, a handbook is not a contract for employment, and Georgia law generally permits an employer to ignore its own policies and procedures. An employer may voluntarily create a culture wherein both management and employees follow the company’s published and agreed upon rules and standards, but the law does not require it.
Some Georgia companies are generous allow separation pay, while others refuse to offer it at all Ultimately, separation pay is a matter of agreement between an employer and an employee. Consequently, separation pay may even be negotiated on a case-by-case basis. Of course, even in an at-will state like Georgia, employers cannot discriminate because of sex, race, or other federally protected categories when making employment decisions, including whether or not to grant separation pay.
When employers make layoffs or other involuntary terminations, employment attorneys sometimes recommend granting separation pay if the departing employees will sign a written release agreement relieving the company of liability. For the release to be legally binding, the separation pay must provide consideration, typically financial, in addition to what the employee is already entitled to receive. When used to secure a release, separation pay must be “above and beyond” ordinary compensation and benefits. For employees age 40 and older, the release agreement must comply with the Older Workers Benefit Protection Act if a claim for age discrimination is to be effectively waived.
The amount of separation pay, considered taxable income by the IRS and therefore subject to withholding, is often based upon the length of an individual’s employment with the company. For example, especially before the great recession, larger companies offered separation pay of one week’s pay for every year of service, often capped at a maximum of 15 weeks, or a flat amount pre-determined by the employer. Separation pay can be distributed in a lump sum payment or in a series of payments issued over a set number of weeks, again with the terms determined by the employer.
Other factors impacting decisions about separation pay include the company’s size, it’s financial strength, an employee’s rank and position in the organization, the legal risks arising from the circumstances of the employee’s departure, and whether or not the employee had a written contract for employment.
It’s important to seek legal counsel regarding issues relating to separation pay, termination or employee claims. For assistance negotiating Separation pay packages, be sure to consult with an attorney who specializes in labor and employment law.
