The Denver Post

Severance pay should be an employment right»

- By Rachel Arnow-Richman Guest Commentary Rachel Arnow-Richman is the Chauncey Wilson Memorial Research professor and director of the Workplace Law Program at the University of Denver, Sturm College of Law.

In a period of historic unemployme­nt, news of layoffs and salary cuts barely command attention. Still recent reports of furloughs and other labor costsaving measures by profitable health care conglomera­tes raise eyebrows. These hospitals, which received billions in federal COVID funds, continue to dole out millions to their highest-earners while front-line medical providers and lower-paid workers suffer the brunt of the cuts.

Part of the problem is insufficie­nt oversight of government funds. Congress could have imposed more conditions on deeppocket industry recipients, requiring them to maintain a minimum percentage of its preCOVID payroll and workforce levels. Lawmakers had no problem doing this with small business owners seeking forgivable loans under the recently enacted payroll protection program. Intended to help businesses meet payroll and overhead during state closures, those funds had so many strings attached that some owners chose to return the money rather than navigate compliance.

But deeper issues are also at play. Bailout funds aside, the employment terms of corporate bigwigs and ordinary workers are starkly unequal, and not just when it comes to pay. High-ranking employees enjoy individual­ly negotiated contracts for secure employment backed by promises of income continuity in the event they are let go. Companies must pay severance, often in amounts equal to multiple years of earnings, if they choose to end the relationsh­ip without performanc­e-based cause.

In contrast, employers can lay off ordinary workers at will without pay and, except in narrow circumstan­ces, without any advance notice. That is because the U.S., unlike most other Western countries, does not mandate severance pay upon terminatio­n. Employers may choose to provide it — either as an act of benevolenc­e or a risk management strategy — but unless a company binds itself to a contractua­l policy or is subject to a collective bargaining agreement, providing severance pay is purely discretion­ary.

That is why so many Americans have found themselves out of work with no warning and only their final paycheck in hand. It is also why the public benefit system is at a breaking point. Ordinary unemployme­nt insurance, which typically imposes waiting periods and work- search requiremen­ts, is designed to support dislocated workers who cannot find new employment. It is not intended to be a remedy for lost employment and it cannot substitute for separation benefits. The over forty million new benefits claims filed since March have overwhelme­d the system’s administra­tive capacity and nearly exhausted its funds. This has left would-be recipients unable to make it through the filing process and in some cases not even bothering to try.

Severance pay should be an employment right, not an optional practice. Ordinary workers — even more so than elite earners — require a modicum of continued pay to support their transition to the next job or, if necessary, the public benefits system. The legislativ­e foundation for such a duty already exists. Federal plant closure law requires large employers to provide sixty days’ notice of a foreseeabl­e mass layoff or shutdown. That law could be expanded to cover all economic-based terminatio­ns and require pay in lieu of notice where the need to reduce staff is unforeseen. This would ensure that when companies make terminatio­n decisions, the cost to affected workers is part of the calculus.

Policymaki­ng in a time of crisis is a dangerous thing. Roiled by state shutdown orders, many companies are as much in need of government assistance as their workforce. It can be difficult to imagine expanding their legal obligation­s at this moment. But catastroph­e exposes structural flaws that can inform future lawmaking.

The federal COVID response — including paid sick days, child care leave, and gig workers benefits — temporaril­y patches a few regulatory cracks. But those measures ignore the gaping absence of severance rights, an even more fundamenta­l failure of the system. When it comes time to forge enduring reforms, Congress should require employers provide an economic cushion to all laid off workers. That way ordinary workers can enjoy a measure of income security, much like the one percent who so richly benefit from their labor.

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