Using Severance Agreements During DOGE Layoffs

Joe Young

Good afternoon and welcome to all of our loyal listeners, and certainly a special welcome to any first-time listeners who are joining us today. This is the spring edition of the GovCon HR Round-Up Podcast. My name is Joe Young. I am the President of GovConPay. We are the only outsourced HR and payroll solutions provider focused exclusively on serving the government contracting marketplace.

And we are coming to you live here from the studios of BLC Digital Strategies, the media affiliate of Berenzweig Leonard LLP, and with great support of our full team and especially our producer, Mr. Todd Castleberry. Before we get started, I always want to thank our sponsor, the folks from Berkshire Associates. Berkshire are HR Compliance experts with over 50 years of experience in providing compliance services and technology for organizations looking to build their ideal workforce through compliant nondiscrimination services, workforce analytics, and pay equity. So special welcome to any Berkshire clients who are joining us today. After your sabbatical last month…

Seth Berenzweig

Oh yeah.

Joe Young

It’s great to get the band back together.

Declan Leonard

Yeah. Yeah.

Joe Young

Don't believe any of the online rumors of an ugly breakup. Everything is all good here. So great to be back with the founding partners and employment law experts Seth Berenzweig and Declan Leonard. Could you guys provide a quick introduction of yourselves and the firm?

Seth Berenzweig

Hi, I'm Seth Berenzweig. I'm a managing partner of Berenzweig Leonard and I help lead the corporate transactional and business litigation aspects of our business.

Declan Leonard

And I'm Declan Leonard. I am also managing partner here at Berenzweig Leonard and I head up our firm's employment law section, and it's great to be back here. I'm surprised we have Joe here today because, you know, it is golf season right now, and that guy, if you can't tell right now, but he's got his spikes on right now and maybe even the clubs.

Joe Young

They’re right in the car.

Declan Leonard

He doesn't waste any time.

Joe Young

Schedule is clear after 3:00 today. Absolutely. Beautiful. It's great to have spring weather back here in the D.C. area. So, as we get going today on today's topic, as always for our listeners out there, if you have any questions for us, please don't hesitate to drop them in the chat. The team will send those to us.

Today, we're going to discuss severance in the age of those layoffs. So obviously a very pertinent, hot topic in today's environment, and uncertainty and the cuts that some of our clients and folks in the contracting space are seeing. But before we dive into that topic, guys, as always, we want to be topical, and there never seems to be a shortage of new topics, new releases, new executive orders from month to month as we get together.

So why don't we jump in here? What are some of the hottest things that we're seeing that we want to maybe address before we get to our topic of the day?

Declan Leonard

Yeah, no. What are we in, year two now of the Trump administration? Is that right? Sometimes it feels like that. Anyways. Yeah. So, as Joe said, we want to kind of catch people up. Obviously in the first 60 days, I mean we are devoting these roundups pretty exclusively to drinking from the fire hydrant or trying to figure out what the latest things are.

So, things that are still hot right now: There was an executive order that was filed just yesterday that was issued by the Trump administration on an issue of disparate impact. And I think we're going to lead with that, Seth, because for us in the employment law world, that's pretty seismic, actually.

Seth Berenzweig

There are two basic kinds of discrimination claims: The more commonly known one – and probably the more commonly asserted one – is the traditional disparate treatment claim, where it's just allegedly flat-out intentional discrimination based upon a protected class. Disparate impact is a claim that asserts discriminatory treatment that, although not intentional, has a disparate impact upon a certain class.

And that's something that is still a claim that's very much alive and well. It's established by a lot of different aspects. And we won't get too wrapped around the axle in terms of multiple regression analysis and all that. But it's safe to say that a statistical impact on a protected group is something that has been, for a very long time, a recognized claim.

The president, with the stroke of a pen, has told his federal agencies, “From our standpoint, disparate impact is no more.”

Declan Leonard

Yeah, a great example, just a very simplistic example of the two in practice: Let's say you have a job posting and it says “no women need apply.” That's disparate treatment. That is singling out a protected class and saying you're not going to work here.

Disparate impact would be something more along the lines of not mentioning women by name, but let's just say “nobody under six feet tall need apply.” Okay? That would have, statistically, I mean, you would just look at statistics of how it would have the practical effect of limiting the pool of women applicants for that particular job. That's disparate impact, and for decades now, the courts have recognized this as a viable avenue of proving discrimination. But, as Seth mentioned, with the stroke of a pen yesterday, President Trump said that the federal government should no longer recognize that as a viable theory of discrimination.

And why that's important is because the Equal Employment Opportunity Commission, which falls under his executive branch, is the one that usually administers these things. And so, they would no longer be able to look at one of those. The example I gave, they would have to just kick that right out. The courts still have their leeway in order to do so.

But it's pretty important. A couple of other things: DEI continues to dominate the minds of HR folks out there. You still have to continue to do these DEI audits. I bet you more and more, since we haven't been in here for about a month, more and more companies have had to do these certifications. I know some of my clients are getting these.

Seth Berenzweig

They can have no DEI components in any of their aspects, procedures, policies, handbook.

Declan Leonard

Anything. Exactly. I mean, you're scrubbing stuff from your social media, scrubbing stuff from your website, everything. And that's a False Claims Act Certification and a condition to get paid. So, it's pretty serious. The cuts are still coming. Agency cuts, we're seeing those. It's hard to keep track of half of them. I know State Department is very much on the chopping block under Rubio.

And then let's talk about the FAR (Federal Acquisition Regulation) because obviously, with our government contracts clients and the folks that are listening here, that's a big one.

Seth Berenzweig

So the Trump administration has entered another executive order commanding that, in six months, within that interim time period, there should be a review as to a comprehensive rewrite of the FAR. Now, that's obviously a big deal. And then the question becomes, okay, there are some aspects of the FAR that are embedded based upon footing with certain statutory requirements, so that may not go to the wayside.

But a lot of the FAR is not. So, the whole aspect of the provisions and the procurements and the methodologies, it's unclear to see how that's going to pan out. But this is something that's coming later this year and definitely a big deal that we need to keep an eye on.

Declan Leonard

So, I think they have 180 days to do this revamping.

Joe Young

I think the deadline is in October.

Declan Leonard

I don't even know if you can read the FAR in 180 days. I’m not about to try.

Seth Berenzweig

I started it about three years ago.

Declan Leonard

I think you should bring it to the beach this summer. It’s a good beach read.

Seth Berenzweig

I was going to do that.

Joe Young

Two pages and sleep. Your cure for insomnia every night. Just keep it next to the bed.

Declan Leonard

But GovCons are on their toes. They continue to be. I don't have to tell the folks that are listening here that that's still very much a wild card in terms of things that are going on in this administration.

Joe Young

Yeah, Yeah. And I think a lot, as you mentioned, the statutory. I think there's a lot of concern. I think a lot of, in our middle market, our clients, a lot of the 8A type companies, are concerned about what the impact will be. So that’ll be very interesting.

Declan Leonard

Yeah.

Seth Berenzweig

You know, this year, I think it's safe to say that the 8A preferences and provisions are probably going to generally be intact. But we do have this change coming up in the FAR. We do have this encouraged change coming up in the procurement cycle. So, it's unclear, and therefore, the certainty is the uncertainty. I think companies just need to be thinking ahead and leaning ahead in terms of their business strategies.

Joe Young

So, getting to our topic of the day: Obviously, a lot of our GovCons are facing the difficult prospects of layoffs based on pending government cuts. How should they view severance as a part of that process? How the how should be severance be looked at?

Declan Leonard

Yeah, let's just take a step back. Severance agreements, separation agreements, they come in a little bit of shapes and sizes, but it's basically an agreement, a legal contract, where you agree as the employer, when you have to do one of these layoffs, you're trying to sort of cushion the fall a little bit here and you basically wrap it up in a contract.

And so, it's a way to do a layoff in a very controlled way. Now, it has financial implications, as we'll talk about, but it can also buy some goodwill in the process if a company is able to do it. And as we'll talk about, the terms are strictly negotiable most of the time or frankly, the company can lay out those terms.

So, even if you're offering two weeks of pay beyond what somebody… We're talking about pay beyond their wages, beyond the pay that they're getting for services rendered, that's payroll. That's not what we're talking about here. That's your world.

Joe Young

Yeah, that's my world. But Seth, there's no legal requirement to have a severance agreement.

Seth Berenzweig

That's exactly right. The general rule is that severance agreements are not required. Now, the only exception to that would be the situation where the employment agreement that's in place might have certain exceptions. So, if there are provisions in the employment agreement or if there are other provisions that might give rise to a situation where someone is wearing two hats, where they're wearing an employee hat and then an equity hat, there may be some paperwork and unique plug-ins that have to come in from that perspective.

However, generally in terms of whether companies have to enter into a severance agreement, they do not have to do so.

Declan Leonard

Yeah, and in some respects, their past conduct kind of informs the process. If they've done it all along and then all of a sudden they stop, you're right, there's no contractual relationship, right? You could argue maybe an implied-in-fact contract. I still think this is something largely voluntary in the hands of companies.

Seth Berenzweig

One other wrinkle that I'll add to it is that the history – Declan raises an interesting point about the aspect of history – severance agreements sometimes raise interesting policy questions because in a severance agreement negotiation, I've seen situations where our client will come to us and say, the employee has asked for an additional X weeks or an additional X months.

And then the question becomes, if we do that, are we setting a new precedent? And if we do set that precedent, and then the next person comes in and doesn't get similarly treated, is that somehow a discrimination claim? So, I'm not trying to get us lost in the weeds here, but if there are separation agreements that are coming about, you have to take a look at them in terms of the broader lens, just to make sure that you have a maintenance of consistency.

Declan Leonard

You can bring, potentially, a discrimination claim if you've got a male getting three months and a female getting two months. That is that is different treatment. Now, the company may be able to explain that. They may be able to say, well, the male employee's been there for X period longer and stuff like that. Sometimes what you can do is you can push out the date of separation, also. For instance, in that particular case, if you did not want to create the optics of disparate treatment, not disparate impact, disparate treatment, what you could do is you could just push that male employee's separation date out a month, even though they're really not working.

Technically, that's only two months’ severance, even though they're getting the benefit of three. So, there's ways around it. You’ve got to be a little bit creative. But as I said, you’ve got to do this with your eyes open and make sure you understand the optics.

Joe Young

And then, as you said, obviously, most of the time this conversation revolves around compensation. But obviously, there's other aspects that we want to look at. So, what are some of the other things that might motivate an employee to sign a severance agreement?

Declan Leonard

Yeah. So, a couple of things. One: getting health care coverage paid for by the company. We're talking about COBRA. COBRA is the federal law that kicks in when you leave a company, and it's got some parameters: You can't be terminated for cause. It kicks in, I think, it's 20 or more employees, but then states have their own little mini COBRA statutes.

So health insurance, that could be very expensive, especially when you have companies that cover almost 100% of health insurance. Pay out of things like bonuses and vesting of synthetic equity. All of this is a creature of contract. It's all a negotiation. So, let's just say somebody leaves, somebody is laid off in a month or two before a bonus is otherwise due to them. You can negotiate to get that bonus still paid, even though technically, under the bonus plan, you would not have qualified for it.

I always tell clients, don't just look at the amount of the severance – it’s usually in the first or second paragraph. Look at some of those other aspects and see if they see if they can add up to what you're looking for. Remember, you're leaving one company, and you need to get another job.

So, making sure that company is going to not impede your ability to get another job. Most of the time, the best you're going to get is a neutral job reference or something, kind of the proverbial name, rank, and serial number, as opposed to a real positive one. But you can always try. And I also see companies, maybe for higher-level executives, doing outplacement training for first time, and they pay for it.

Joe Young

We actually do have a question that's come in from the audience related to that and to COBRA. The question is, can offering COBRA be contingent on accepting a severance agreement?

Declan Leonard

No. COBRA is a federal law. COBRA kicks in and it usually means that you can get 18 months. You're basically piggybacking on the company's insurance policy and therefore you're getting better rates. It's kind of economies of scale.

Seth Berenzweig

For half the premium, right?

Declan Leonard

Well, no. So, you've got to pay the full premium as the employee. You've got to pay whatever the company's deal is. You've got to pay that.

Seth Berenzweig

During that window of time.

Declan Leonard

Yeah. So, to that question…

Joe Young

It’s access to the plans.

Declan Leonard

Yeah. It's just access. Exactly. So, whether or not somebody decides to sign a severance agreement, COBRA still… Those notices still need to go out, and that's a whole separate headache if HR mucks that up.

Seth Berenzweig

Because then they don't have the opportunity to be able to maintain the policy through the contributions on the premium, and then the insurance can lapse.

Declan Leonard

That's exactly right.

Joe Young

So, Seth, obviously, we talk about some of the motivations for the employees for accepting severance agreements, what are some of the other things maybe they can negotiate. And you said a lot of this stuff is negotiable, but from the employer's side, in a time of uncertainty and uncertainty in cash flow, what's motivating the employers to be looking to extend cash benefits and other benefits to their employees?

Seth Berenzweig

The question from the company's side, “well, what do we get out of it?” Well, you get a couple of things out of it. First of all, you get releases. And so, to the extent that you have a traditional separation agreement, you'll get broad releases. The age of the person will have an effect on what they're waiving.

So, if somebody is over the age of 40, under the Older Workers Benefits Protection Act, there will be some extra ribbons and bows in there. But the short answer is the most important aspect of the releases. You also have other aspects that are traditionally embedded in there that the company gets a benefit out of, such as confidentiality and those kinds of controls that otherwise would not be imposed.

Now, that needs to foot with what the contents already are in that person's employment agreement. Sometimes those employment agreements are already robust and a lot of those things are in there. So, the main function of what you'll get in that additional document, are the releases. But I have seen a number of times where a company doesn't really have an employment agreement.

They really have, for lack of a better phrase, an offer letter. And the offer letter is usually about a page and a third, and usually says, “Hey, we're really happy to have you. You're starting off with this and you're doing that and you get this and you get that and there's your salary and sign here and welcome aboard.”

Well, okay, but that's not really locking anything in place. So, what is being provided additionally with regard to releases and a separation agreement is going to ultimately also foot back to what, if anything, is in the original employment agreement. The less that's in the employment agreement, the more the company can benefit out of a release.

Declan Leonard

That's right. And one thing to keep in mind, you raise a great point about… Make sure when you're doing a separation or a severance agreement that you know what they have previously signed, like if they've signed an employment agreement or even what they call a non-compete agreement, confidentiality, make sure that you don't extinguish that prior document.

There's always going to be people call it boilerplate, but it's actually very important stuff. It's usually on the last couple of paragraphs of an agreement, and it'll say, “this constitutes” – let's just say you have a separation agreement – “This constitutes the entire understanding between the parties and supersedes anything prior.” Well, what you have just done, if you have that language in there, is you've just extinguished their non-compete, their confidentiality, things of that nature.

So make sure you say that it also swoops in that document and that document remains in full force, in effect.

Seth Berenzweig

Maybe attach it.

Declan Leonard

Yeah. Yeah, I've seen that, too. The other the other aspect, it's worth talking about, is that these are the layoffs that are going on right now are completely, most of the time, outside the control of companies. They're in reaction to what DoGE and the Trump administration are doing, and that is no set course in my opinion.

Things are still in flux, in my opinion. And so, the one reason why you may want to dip into the cash reserve –which I know is limited and you’ve got to be to be guarded about that in these days – is you build up some goodwill. You help somebody have a soft landing and maybe get back on their feet in a couple of months or something, because a lot of this stuff can be reversed.

A lot of this stuff – it may not be this year, it may not be next year – But these are your employees that may very well come back to you if this work comes back to you.

Seth Berenzweig

Yeah, that's a good point. There have been situations where Musk and team have moved so quickly, and not a ton of examples, but several examples where people have to be brought back. Well, if you bring people back, it's because they're essential or close to it. And if they're essential, and you've already wasted that relationship, then that's not going to help the organization.

Declan Leonard

If it is seen as though the company is cutting the cord very quickly for its own financial – and not really thinking about how this is going to impact the employees family and stuff – I think employees will remember that and perhaps not be very receptive to those calls to come back.

Seth Berenzweig

Yeah, I agree.

Joe Young

One other question. We had another question just came in as well. We kind of touched on this. I want to make sure if there's anything else we want to kind of add to this with regards to just offering severance agreements, not to everybody, and being selective in that. I mean, we talked a little bit about making sure it's not discriminatory. Is there any other things we want to add to the selectiveness of severance agreements? And that may be a slippery slope.

Declan Leonard

This this does come into play. Not in the context of these layoffs that are a little bit more like group layoffs. But it's almost like the squeaky wheel gets the grease. The ones that you're most worried about in these terminations, those are the ones you look to do these for because you do want to wrap them up in a bow.

You don't want drama with them. I think, while it is okay to have a little bit more of a selective process in the past, when you're doing these layoffs, word's going to get around. And if there's a pattern to why or who you're giving these to, I think you're really exposing yourself legally.

Seth Berenzweig

And if you're going to do that for any business practicality, then you need to somehow make a contemporaneous business record of what the business reason is

Declan Leonard

Definitely.

Seth Berenzweig

We had a situation where someone was going to be departing, but they were a senior person. They had been there for a long period of time and therefore, based upon their years of service, there was a business justification.

If you can have a legitimate business justification, then that could be something that that you can pull out of your pocket later. Just make sure that you have it in a record. And then, that would be something that you could get admitted later as a regular business record.

Declan Leonard

Yeah, and there is one motivation beyond all of this, beyond the goodwill and everything, is sometimes you just want to tamp down the drama. You know you have a particularly volatile employee that you think might make hay with your prime contractor, the government client, because remember, they're most of the time on-site. They know the government client and the people and their email addresses.

And I'm saying this from experience. We deal with these sometimes and sometimes you might want to get a separation agreement, a severance agreement, in order for them not to disparage the company. I've also recommended to clients that when you're going to pay severance, the longer you spread out those payments, the more, for lack of a better phrase, you have them on a bit of a leash. If you give them a lump sum payment – because it's your choice. If you want to give them a lump sum versus continue paying them like a regular payroll schedule – you certainly can stop those payments if you get one hint that they have, in essence, breached the agreement. Because if they breach, you don't have to pay them.

Joe Young

Well, some of the provisions in some of these agreements we've seen where employees have a certain amount of days to actually review it or even have the ability to revoke their signature after they sign. Why would a company have some of those provisions?

Declan Leonard

It causes so much confusion. Our federal government, I'm sure they meant well when they did this, but it has to do with age discrimination. Age discrimination – a lot of people are surprised that as soon as you hit 40, you're in a protected class. It's like you're over the hill. They want you to have...

I say that as someone way over that, but they want you... The thought behind it is they want you to have sufficient time to review it. And so what the law does, the Older Worker Benefit Protection Act, it's a federal law that says any time you're asking an employee to waive or release age discrimination claims – which these are general releases that we're seeing, so of course it includes that – they get 21 days to review it. So that means when you send it over to them, it's not 21 days from the date of their termination or any of that. It's 21 days from the date you email or hand it to that person or whatever. And so they get 21 days to review it and then once they sign it, they get seven days to revoke it.

I've never – been doing this 30 years now – I've never seen a revocation after somebody has signed it. I don't know if you have. I don't know if any of the folks in the firm have, but I've never seen that happen where they sign it.

Seth Berenzweig

Front end is 100 times more volatile than the back.

Declan Leonard

Yes, I agree. Once they sign that, they're pretty resigned. But what it does do is it creates a lot of – I would… maybe I'm overstating it when I say confusion – but then you have to account for all of this. You can't pay somebody. Some people want to get paid right when they sign.

Well, no. You’ve got to wait until eight days because those seven days have to go by. It's a little cumbersome. But it is a factor in these agreements. And that's why you see them in there. Normally, for single layoffs, 21 days, seven days to revote.

Joe Young

It's like the severance lemon law, like with a car you get to bring back.

Declan Leonard

Yeah. Yeah, yeah, exactly. Exactly. Buyer's remorse.

Joe Young

Sorry. Follow-up question, does that review timeline reset if an employee makes any changes to the agreement?

Seth Berenzweig

Well, I think that there can be a difference in the timeline depending upon the circumstances. If you have an individual layoff for someone over the age of 40, then the 21 in seven days applies. For mass or group layoffs, I think it's 45 days and seven. Yeah, it's the two main features that make it a different situation for a release agreement in group layoffs is that the time to review is longer, and the and the attachments to the agreement are a little bit more extensive because you get a chart showing the ages of the people who are affected by that.

The other thing that I'll briefly note, because I know that we're running out of time, I think how you capture and describe the developments of what's happening is also important. I've seen a situation where only one or two people are let go, but then the companies referring to it as a reorganization. If it's not really a reorganization, don't use that word.

Be careful with the words you use because words get loaded. And if you say this is a reorg and we had to let her go, her lawyer will come back and say, well, it was a reorg and she was the only person who was reorged? So, not only do you have to look at it in terms of these little procedural elements, but sometimes substance matters.

Declan Leonard

Well, not to mention the people who are left behind who are hearing – because word travels quick. We know how that works. – People are hearing that there was a reorg… If there's a reorg, I'm looking over my shoulder, too. So that's definitely one.

You mentioned the concept of the timeline resetting. And this is an issue that sometimes happens with HR folks when they're working with severance agreements. I said the 21 days starts when you hand them the agreement. If there is a negotiation and there are material changes to it, the law says that the 21 days is restarted. You can just imagine how this just takes forever and ever, so you can actually put a contract in there that says any material changes in the severance agreement will not restart the 21-day clock.

And by the way, this is not really something you're trying to do adverse to an employee, because an employee doesn't get paid…

Joe Young

They don't want it to reset too and then have the seven-day waiting period again, too.

Declan Leonard

They start to miss payroll periods. And, you know, a lot of people have cash to get, live payroll to payroll.

Joe Young

All right. So, wrapping up maybe in our time here, Declan, what are, for people that are going through this severance process, what are some of the other things that should just be a part of that process?

Declan Leonard

And most of this is based on war stories: Return of property, and most of that time, it's going to be the laptop. Whether it's your laptop, the Prime's laptop or the government client's laptop. I can't tell you how many times we've had to intercede on behalf of our government contractors to get that laptop back. I usually make the payment of severance contingent upon already receiving that laptop back.

Unemployment becomes a question in these agreements because sometimes they'll characterize this as a resignation just to kind of soften the blow, maybe help them in their next thing to show that they weren't laid off. I usually have a phrase in there that says the company will not contest eligibility for unemployment. Give them a chance to, in addition to getting severance, they won't get unemployment until the severance is over with, so they can't double dip. So, that's another issue.

And remember your final paycheck, and if you owe them accrued but unused paid time off payouts, those have to be paid regardless of whether or not somebody signs a severance agreement, and know your state laws on those. Because, like so, for instance, DC says you've got to give them their final paycheck within 24 hours.

California says you've got to hand it to them in the meeting that you're terminating.

Joe Young

As a payroll company, we know that. We hear that all the time.

Declan Leonard

Yeah, taxation, it's mostly going to be treated as wages, even though it's not for services rendered as most of the time going to be treated just as similar as wages.

Seth Berenzweig

I'll throw in one tiny little final note for people who are offsite and you're separating people and they're offsite with their laptop. Give them a FedEx or UPS box with a return label. Just make sure that you separate out a contention of a lack of clarity in terms of how it gets returned. You give them the box, you have the tracking number.

You make sure that you do that because that computer has sensitive confidential information as well as things that may also belong to the agency. So, controlling that laptop, we've seen a lot of laptop stories.

Declan Leonard

My God. I had one where the employee wrote back and said, “Show me in the employee handbook where it says I have to return my laptop.” It's just like, I mean, there are a lot of things that are not in that handbook that are kind of common sense.

Joe Young

They're too busy deleting their browsing history.

Seth Berenzweig

Yeah, there is the crime thing.

Declan Leonard

Yeah.

Joe Young

All right. Well, guys, as always, always a pleasure. I think great timely content again for our viewers here. So, thank you to everyone for making time in your day to join us again. Hope this was helpful. Hope some key takeaways if you're going through some of these challenging times. Definitely hope this was beneficial to you and your team.

On behalf of Seth, Declan, and our team behind the scenes, thank you again. We look forward to seeing you next month. We will be on the fourth Thursday again next month on May 22nd. We have not come up with a topic yet. So what we're going to throw out to our viewers today, if anybody out there is like, “I really wish they would talk about X,” put that in the chat.

Feel free to email any of us directly if there are certain topics out there you see people are looking for some support in or would like us to address. We would love to accommodate if we can. So, look forward to some feedback from the group, and we look forward to seeing you next month. Take care.