Definition of Mass Separation Agreement
When large groups of employees experience the same outcome from an employment decision, an employer will want to use a different document than an Individual Release to document an individual employee’s agreement about the same outcome. This document is known as a Mass Separation Agreement.
A mass separation agreement is typically required when an organization is laying off, or at least, reducing, a number of employees at the same time . A mass separation event can also occur when a portion of a company is being sold or divested and all employees working for that portion are terminated.
Separate and apart from whatever national or local rules apply to such mass separations, the purpose of a mass separation agreement is to provide the organization with a release of its obligations to the departing employees and to insulate it from significant legal or financial liability.
Components of a Mass Separation Agreement
The agreed terms of a mass separation often include severance packages, non-compete clauses and confidentiality clauses. Other times, there are additional considerations made for retained counsel to negotiate, or further tailor, a specific mass separation. Severance – Severance packages in mass separations can be either a one-time payment or a series of installment payments over an extended period. Severance may also be tiered based upon factors such as seniority. For example, employees with less than three years of service may be entitled to a one-week severance payment for each month of employment, while employees with more than 20 years of employment may be entitled to a one-week severance payment for each two months of employment. Non-compete – A non-compete clause may prevent an employee, within a certain geographic area and for a prescribed length of time, from engaging in business with certain competitors. For example, a non-solicitation or non-competition clause may prohibit a former employee from soliciting former or current customers of the company for a certain period of time. Recently, many companies are eliminating such phrases from their mass terminations altogether, incurring a potential loss of future business. Confidentiality and return of company property – A confidentiality clause is often included to prevent a former employee from disclosing any proprietary information of the company concerning its business, such as trade secrets, procedures, etc. Legal Waiver – Employees are sometimes asked to waive any legal claims against an employer as consideration for severance benefits.
Legal Implications for Employers
The primary legal consideration for employers looking to implement a mass separation agreement program is whether the program implicates age discrimination laws. The Age Discrimination in Employment Act (the "ADEA"), prohibits discrimination against employees over the age of 40. The ADEA’s prohibitions cover any employment-related decision, including termination of employment. The ADEA authorizes certain exceptions, however. One of those exceptions is set forth in the Older Worker’s Benefit Protection Act ("OWBPA"), which provides certain requirements that must be met in order for employers to be exempt from liability under the ADEA. In the context of a mass separation program that involves release of claims in exchange for severance, the OWBPA requires the following:
It is important to note that the OWBPA requirements are mandatory only where the waiver is being given in exchange for something other than the employee’s job—or if the employee is 40 or older. In contrast, "exit incentives" are never mandatory (as they are not a right) and employers may unilaterally offer to employees in order to reduce wages and/or benefits in a general economic downturn.
Employees’ Rights to Mass Separations
Employees have important rights in mass separation situations. As noted above, the WARN Act requires employers who are covered by the law (which is not common to small and mid-sized businesses) and who are planning a mass layoff to provide affected employees with a minimum of sixty (60) days advance notice of the layoff. If the employer plans to lay off 50 or more employees, then the WARN Act dictates 20 to 40 additional requirements for adequate notice. These technical requirements can make the difference between complying with the WARN Act and violating the WARN Act, so employers must take these requirements very seriously. If the employer fails to properly provide advance notice of a mass layoff, employees have a right to recover back pay (including benefits) for each day that proper notice was due but not given, up to a maximum of sixty (60) days. In addition, the employer will owe the same back pay to other affected employees who were not included on the Section 3(f) notice list.
Labor and employment lawyers across the country have learned that neither the employees facing the prospect of a mass layoff nor their employers understand in a practical fashion the requirements of the WARN Act (or equivalent state laws). As this article has demonstrated, the WARN Act contains many, many technical requirements beyond the basic requirement of giving advance notice of a mass layoff. By hiring a labor and employment attorney who specializes in WARN Act issues, both employers and employees can ensure that their interests are safeguarded. Affected employees have a right to assume that the employer will obey the WARN Act and will either provide proper notice of a mass layoff or will pay them the pay and benefits owed to be excused from providing notice. Employees seeking to protect themselves in a potential mass layoff should immediately consult with an attorney who understands the nuanced and highly technical requirements of the WARN Act.
Steps to Take Before Entering into a Mass Separation Agreement
Setting measurable goals: Organizations should ensure that the feasibility of anticipated results is proven with data numbers before making a decision between voluntary and involuntary separation. In order to achieve this goal, it is highly recommended that the organization identifies key criteria which are used then for the selection of individuals to separate.
Planning the rollout: It is advisable that the organization prepares an implementation plan contingent on whether the voluntary or involuntary separation agreement is chosen. Either way, plans should include a communication strategy, a follow-through system for the expected results, a system for tracking and reporting the voluntary separations, and a system for helping the RIF workers transition into the job market including providing assistance with job searches, providing severance packages and out-placement resources .
Communicating the RIF: It is highly suggested that the organization has a communication plan or strategy in place to relay information to all relevant and involved parties. The information should be delivered in a timely fashion and should discuss background information, necessary recommendations and provide a vision of how the RIF will affect each person involved and the organization as a whole. The communication will also need to include information about any consents and releases the employee will need to sign.
Following through: To ensure the effectiveness of the strategy and the success of the mass separation from the organization, it is crucial that the employer does not lose sight of the implementation plan. It is advisable that the organization follow through with what was identified in the rollout process. A point person should be assigned to ensure the strategy is carried out as described. The regular meetings to measure the success of the plan should be held throughout the process.
Common Issues that Arise
The reality is that many organizations will encounter a myriad of challenges when processing a substantial amount of layoff (or "mass") separations within a short time frame. Even if you have the best of intentions, flexibility and nimbleness likely will characterize the plan to address the following issues:
Timing
Even with an announced mass layoff, your organization may not have the luxury of processing the associated separations in a deliberate manner.
Diversity
Culture, gender and age cannot be overlooked when deciding which positions or employees to restructure or eliminate as part of a mass layoff. The issue of diversity frequently arises in the context of severance offers, release agreements, etc.
Documentation
Documentation often plays a critical role in the context of a mass layoff. There are several tips for managing effective documentation in the context of an organization’s goal to provide consistent information to employees during an announced layoff. Understanding Challenges. Receiving often negative feedback from concerned employees often times is unavoidable. Organizations that layoff multiple employees at the same time should expect to receive questions about varied matters — some of which may not present a problem for most of the layoff cohort, but one or more employees may approach a labor union, government agency or lawyer about the following:
Positive Precedent: Addressing Mass Layoff Challenges As noted above, an organization contemplating a mass layoff should approach the matter in a way that allows for maximum flexibility in the context of a strategic plan that it operationalizes (e.g., processes and procedures) before the need becomes imminent. If planning for such a situation becomes necessary, an organization may take the following infection control steps:
Employee Transition: Implement a program that provides employees an opportunity to access available alternate positions within the organization. Possibly set forth time and attendance requirements, along with skill requirements, whereby an employee in good standing can apply for available alternate positions elsewhere in the organization.
Fundamental Employment Relationship: While not every state permits an employee to sue for wrongful discharge even in the absence of a written agreement, there is no valid reason to exacerbate the situation with a separation agreement that disclaims the employer-employee relationship where such disclaimers are not state-mandated or otherwise necessary.
Effects on Company Culture and Staff Morale
Mass separation agreements can have far-reaching consequences that go beyond the individuals who sign them. Acknowledging the real and potential impact on company morale and corporate culture is an essential part of managing and minimizing the adverse effects of mass separations. Rather than wait until the separation has occurred, employers should proactively and clearly address the issue as the events leading up to a workforce reduction are communicated to staff.
Transparency and consistent messaging is important – no more now than in any other situation. With the speed and intensity of information exchange today, rumor and innuendo are commonplace and dissemination of inaccurate or incomplete information can cause discontent, lack of productivity, and retainment issues with staff . While having a group of individuals who have accepted a severance offer may help mitigate some of these issues with the remaining group of employees, a lack of transparency about the events leading to the individuals’ decision to depart can quickly water down the benefits of the elective nature of a departure.
Other considerations include whether the departing staff is being required to sever, how staff are selected for the separation, when the separation will take place. Information in these areas should be communicated honestly. A communication plan should address specific questions likely to be asked to alleviate employee fears.
With or without a communication plan, employers should be conscious of the likely impact on culture and morale. Leaving staff with an unanswered feeling of instability will result in absence and possibly loss of key staff members. Employers should be prepared with enough transitional support (through managers or peer mentors) to ensure the momentum of the organization is maintained during a reduction.