Can severance pay be reduced because an employee falls under WARN or v

[Luis Miguel]

The situation is this: a company had a severance "package" it offered to those employees they have had to lay off. Recently the company has downsized tremendously, placing them under the requirements of the WARN Act. Because of this, the company adopted a formal severance "plan" which says that those employees falling under WARN will have their severance benefits reduced by the amount the employer has to pay them under WARN. Is this fair? How can 2 employees be treated differently under ERISA just becuase one employee falls under WARN? And what about WARN, does the statute say you can reduce payment if the employer has set up some sort of severance package for the outgoing employee??

[Guest KGibson]

The WARN act requires notice to employees, but does not require severance payments. Regular payroll earnings are required to be paid, but severance is not an entitlement under WARN. HOWEVER, did they give the appropriate notice as required under the WARN act? Penalties for an employer who violates the WARN provisions by ordering a plant closing or mass layoff w/out providing appropriate notice is liable to each aggrieved employee for an amount including back pay and benefits for the period of violation, up to 60 days. The employer's liability may be reduced by such items as wages paid by the employer to the employee during the period of the violation and voluntary and unconditional payments made by the employer to the employee.

Enforcement of WARN requirements is through theUnited States district courts. Workers, representatives of employees and units of local government may bring individual or class action suits. In any suit, the court, in its discretion, may allow prevailing party reasonable attorney's fee as part of the costs.

For Specific info, see Public Law 100-379 (29 U.S.C. 2101, et seq.)

General questions on the regs can be addressed to:

US Dept. of Labor

Employment and Training Administration

Office of Work-Based Learning

Room N-5426

200 Constitution Ave,NW

Washington, D.C. 20210

(202)219-5577

Good luck!

[Luis Miguel]

The employer did not give the full 60 day notice which is why this question arises. The employer accepts the fact that the mass layoffs fall under WARN and I know that WARN does not require payment of severance pay. The question was whether one benefit, severance pay, can be reduced because of the WARN requirments; or vice versa....WARN 2104(a)(2)states "the amount for which an employer is liable under paragraph 1 shall be reduced by...." Does the payment of severance reduce what they are required under WARN to pay???

[Guest KGibson]

There are 3 exceptions to the 60 day notice, Faltering company, unforeseeable business circumstances, and Natural disaster. It appears that possibly one of these may be the circumstance. I am not legal counsel, but have been through 5 plant closings. I would venture to say that severance is not necessarily a "benefit" or "wages" as defined by the act. Severance is typically at the discretion of the employer and does not relate to actual physically worked labor for the company. However, some state statutes may mandate differently. Since severance is somewhat discretionary, I would think it is most prudent to say consistent practice in administering the company policy would be the biggest concern. HOWEVER, depending on the circumstances and outcome of the severance pay and if a particular group of people are treated with any disparate treatment, or if disparate impact occurs, it may open other cans of worms. BUT bottom line, it is only my opinion, that severance can be reduced in accordnace with a company policy(if it is only severance and not earned wages nor has there been any contractually binding promise to the contrary) if not discriminatory to any particular group, or is not structured in a way that violates any particular state laws. If the company has been having mass layoffs due to the company faltering, or other financial hardships, they will certainly have a strong position to argue for reducing severance payment.

[Guest FAQ]

Has anyone seen anything on this recently? There are a number of cases that have held there is no offset for severance pay when the severance pay would have been paid regardless of the WARN Act liability:

Dillard's, 778 F.Supp. 297

Frymire, 61 F.3d. 757 (10 Cir. 1995)

Ciarlante, 1996 U.S. Dist. Lexis 16741 (E.D. PA)

However, none of the cases appeared to involve severance plans that explicitly provided for a reduction of severance pay by the amount of WARN Act liability (or vice versa).

It seems to me that such a provision in an ERISA severance plan should be allowed and should be enforced, unless there is some fiduciary reason to prohibit it.

[mbozek]

Why is it assumed that plan design is subject to fiduciary review. The decisions on the benefits to be provided under a plan by the sponsor are settlor decisions and not are subject to review by a fiduciary. ERISA does not regulate the benefits that an employer can provide to employees, it only provdies for enforcement of the promise the employer makes. Severance benefits are provided by the employer as a condition of employment and the employer can provide the benefits under any terms it wants. Since WARN benefits are a form of severance benefits there is no reason for the employer to pay both severance and WARN benefits. Also there is no violation of WARN since it is the severance benefits not the warn benefits that are reduced.

[Kirk Maldonado]

I agree with MBozek.

[Guest FAQ]

Thanks for the responses. I confess that I wasn't thinking about settlor/fiduciary functions. I agree that it's up to the company to provide whatever severance benefits it chooses, including no severance. A company probably would not succeed in reducing its WARN act liability, however, if it merely paid severance pay that participants were entitled to regardless of WARN act application.

This is made clear in the cases cited earlier, as well as the following case, in which a generous employer provided severance pay, plus 60 days of regular salary, and was still sued under the WARN Act (albeit unsuccessfully):

Association of Western Pulp and Paper Workers v. ITT Rayonier Corp., 1994 U.S. Dist. Lexis 13094 (W.D. WA).

[david rigby]

Although not mentioned specifically in the above circumstances, it may be that a collective bargaining agreement exists, which could require some payment, whether or not labeled as "severance". If the payment was stopped or altered, that might point to an issue of enforcing (or interpreting) the CBA.