Government Severance Pay Act Limits Severance Compensation to 20 Weeks, Prohibits Severance for Those Fired for Misconduct

Public Act 100-0895, which takes effect on January 1, 2019, limits the authority of non-home rule government employers to offer extensive contractual severance pay provisions to officers, agents, employees and contractors. The Act mandates that any severance provision in new or renewed government contracts or employment agreements may not exceed 20 weeks of compensation. The Act also mandates that any contract providing for severance pay must include a provision prohibiting severance pay if the officer, agent, employee, or contractor has been fired for misconduct as defined by the Act.

The Act defines “misconduct” in a way that includes:

• Conscious disregard of the employer’s interests that include a deliberate violation or disregard of employer standards including but not limited to willful damage to the employer’s property or theft of employer or customer;
• Carelessness or negligence sufficient to show culpability or wrongful intent or intentional and substantial disregard of the employer’s interests or the employee’s duties and obligations;
• Chronic absenteeism or tardiness in deliberate violation of a known policy, or one or more unapproved absences following a written reprimand;
• Willful and deliberate violation of a State-regulated standard which would cause the state licensed or certified employer to be sanctioned or have its license or certification suspended;
• Violation of a known, reasonable, and fairly and consistently enforced employer rule; and
• Other serious misconduct such as committing criminal assault or battery on another employee, customer or invitee of the employer, or committing abuse or neglect of an individual in the employee’s professional care.

On initial review it might seem that any egregious or well documented violation, like those identified in this Act, would result in an uncontested termination without severance pay. Before terminating an employee, employers generally ensure that such a termination is based on well documented, performance-based issues. Many times, however, employees who were terminated for performance issues later sue their employer for such things as discrimination (for example: “I was terminated because I am a woman, or because of my age, or because of my religion”), when in fact the reason they were fired was because of their poor work performance, chronic absenteeism, abuse of sick leave, or for other performance based problems. When an employer has such a legitimate, non-discriminatory reason for terminating an employee, the employer should have a defense against such a discrimination lawsuit. However, to protect themselves from the risk and associated costs of defending against even an unwarranted discrimination lawsuit, employers frequently find it useful to offer a minimal severance package in exchange for a full release from the terminated employee.

The Government Severance Pay Act takes away the ability of a government employer to protect itself in this manner. That is because a government employer who terminates an employee for any of the legitimate performance reasons covered by the new Act cannot now offer the terminated employee any severance in exchange for an agreement not to sue. If the employer wishes to offer severance for any legitimate reason — such as to reduce the risk of a future lawsuit — then it cannot base that termination on the most common performance-related issues. This leaves employers in a difficult situation where, despite the fact that a severance and release agreement might reduce their costs, they no longer have that option available in the case of most performance-based terminations. Admittedly, this Act, reflects the public perception – and occasional reality – that severance agreements have been used to provide additional rewards to non-deserving or offending terminated employees. However, the Act may well have the unintended consequence of increasing government litigation costs for termination of employees.

Further muddying the waters is Public Act 100-1040 that was passed earlier in 2018 and went into effect on August 23. This Act applies to severance packages given to employees terminated in cases where there was a finding of sexual harassment or sexual discrimination. In those cases, the Act mandates publication disclosing specifics of the severance agreement including the amount of the payment and when the severance agreement was approved. Presumably, after Public Act 100-0895 goes into effect on January 1, 2019, the requirements of Public Act 100-1040 will essentially be moot. It should no longer be possible to give a severance package in cases where there has been a finding of sexual harassment or sexual discrimination since those would seem to be the sort of behavior for which severance pay will no longer be permitted.

With time, we will see if these Acts, intended to discourage the provision of severance pay to clearly offending employees, actually turn out to be useful tools to enable municipalities to refuse to provide such pay. Alternatively, they may become a problematic limitation on the ability of government employers to effectively terminate employees without challenge. In all events, however, local governments should remember these new requirements when negotiating new or renewed employment agreements, when negotiating severance agreements and when considering the discipline or termination of employees who may fall under the requirements of either of these Acts.