Severance benefit claims in Chicago and the rest of the country arise in several contexts. Your employer may have a formal written severance plan, sometimes called an income protection plan, applicable to all employees or a select class of employees, outlining the number of weeks or months of separation compensation payable in the event of an involuntary termination. These plans may or may not include other benefits, usually continued participation in the employer’s health insurance plan at a subsidized rate. Severance can also arise from an informal plan that is not in writing, but through a pattern of providing the benefits it has become an ERISA employee benefit plan.
“Good Reason” Voluntary Termination
In addition, executives, managers and other professionals may have individualized severance or separation agreements provided pursuant to an employment contract. You may be entitled to severance benefits even if you are not involuntarily terminated, but instead you have “good reason” for voluntarily separating. Every agreement can define this differently, but often “good reason” is linked to some degree of change in ownership, change in control, or a material change in your own duties or authority. These severance arrangements may or may not be part of an ERISA plan, but it requires a skilled ERISA lawyer to determine that.
Compared to other type of compensation or benefits, severance is perhaps the murkiest area of all in determining whether particular benefits are covered by ERISA, and thus subject to ERISA’s regulations on claims procedure, or not. Even in the absence of a formal written plan or a group of employees to whom the severance applies, severance may be covered by ERISA depending on the facts and circumstances of the case. A detailed inquiry must be made into whether the purported plan has a reasonably identifiable class of beneficiaries, a reasonably identifiable method of determining benefits, a funding mechanism, and a reasonably ascertainable claims procedure. If the severance benefit is part of an ERISA plan, failing to follow the proper pre-complaint procedures could be fatal to your claim. You may also be entitled to severance benefits, part of which is covered by ERISA and another part of which is not. Pursuing a claim for severance benefits is akin to entering a maze in a corn field. Knowing which path exits the maze is critical to choosing an entrance. While any lawyer can walk with you into the maze, only a lawyer with an in depth knowledge of ERISA has a bird’s eye view of the maze and can identify which path to enter.
Frequently, severance benefit plans or agreements provide a forfeiture provision, dubbed a “bad boy” clause which may purport to relieve the employer of the responsibility to pay severance in the event of a termination for cause—as defined in the plan or agreement—or for some other specifically defined misconduct. Not surprisingly, with executive and managerial compensation higher than that of other employees, employers more often cite these forfeiture provisions to avoid paying benefits originally promised to bridge you to your next position. We assist clients in claiming severance benefits and appealing denials of such claims.
When separation occurs, you may be faced with a decision on whether to sign an offered severance agreement or not. We consult you on the process and try to determine whether or not there are other claims you should not waive by signing an agreement.
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