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Reduction in force? Make sure severance packages are equitable for similar employees

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in Compensation and Benefits,Discrimination and Harassment,Human Resources

Here’s something to keep in mind if you’re contemplating a reduction in force: If you plan to offer severance packages in exchange for a liability release, make sure you aren’t too selective about who gets the best deals.

Why? Being denied a severance package—or even getting one that’s less generous than others receive—can be an adverse employment action. And that can trigger a lawsuit.

Solution: Before approving severance offers, make sure all similarly situated employees are in line for substantially similar packages.

Recent case: Karla Gerner worked for the Chesterfield County government for 25 years. She was the county’s director of HR management and received uniformly positive performance reviews.

Then the county underwent a re­­­organization, and Gerner learned she would be among those to lose their jobs. The county offered her three months’ pay, plus continuing health insurance coverage, in exchange for waiving her right to sue. The county gave her a week to consider the offer.

Gerner turned it down and was terminated. She then sued, alleging sex discrimination.

Her claim? She discovered that four men were also slated for termination, but received substantially better severance agreement offers. Some were transferred to other positions to provide more transition time. Others were offered up to six months’ pay as part of their severance or were allowed to remain on the payroll long enough to enhance their retirement packages. Plus, at least one was not meeting expectations when he was terminated, but still got a better offer than Gerner’s.

Because the men were at the same classification in the organizational structure, she said their better offers were discriminatory.

The county argued that because severance packages aren’t an en­­title­­ment, not getting one (or being offered a less valuable package) isn’t an adverse employment action. Absent an adverse employment action, Gerner would have no grounds to sue.

The court sided with Gerner, concluding that discrimination charges can hinge on something that wasn’t part of an existing employment arrangement or a legal entitlement.

It said anything offered to one employee but not another because of the employees’ sex, race, age or other protected characteristic can be grounds for a discrimination claim as long as the employees are otherwise similarly situated. Thus, for example, employers can’t offer advanced training to male managers but not to female managers.

Neither, the court said, can em­­ployers offer men better severance deals. (Gerner v. County of Chester­­field, No. 11-1218, 4th Cir., 2012)

Final note: The court also made another decision that may cause much confusion. It said that it would not matter whether Gerner was terminated before Chesterfield County made the other severance offers. Title VII protects current and former employees from discrimination, thus allowing Gerner to sue for sex discrimination—even though she was fired before the men were offered their packages.

The decision leaves open the question of how long is long enough to cut liability. Must the employee be fired a month, a year or five years before the other severance packages were offered? Or is it enough that the offers were made during the same reorganization?

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