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Severance Pay, Dismissal Payment or Wages in Lieu of Notice - Section 8-1009- Maryland Unemployment Decisions Digest

 

Introduction

The provisions dealing with severance pay are located in Section 8-1009 of the Labor and Employment Article of the Maryland Annotated Code.

COMAR 09.32.02.13A defines "severance pay" as the gross amount of severance pay, dismissal pay, pay instead of notice of termination or other remuneration paid or payable to the claimant upon separation from employment. Severance pay that is paid in a lump sum or in increments is allocated to a number of weeks following the date of the claimant's separation from work. The period of time to which severance pay is allocated is calculated as follows: first, the claimant's daily wage is calculated by dividing the last weekly wage by seven; second, the total amount of severance pay is divided by the claimant's daily wage. This yields the number of days to which the severance pay applies. If the severance pay allocated to a particular week is less than the claimant's weekly benefit amount, the claimant shall receive the difference. If the severance pay at least equals the claimant's weekly benefit amount, the claimant is disqualified from receiving benefits until the severance pay is exhausted.

The Board has determined that claimants who are kept on the payroll for a period of time after being laid off, but who perform no services for the employer, are receiving severance pay. The Court of Special Appeals has affirmed the Board's position on this issue in the case of Westinghouse Electric Corporation v. Patrick J. Callahan, et al., 105 Md. App. 25, 658 A.2d 1112 (1995). In that case, the employer notified 33 of its employees on October 30, 1992, that they would be laid off effective December 30, 1992. The employees were not required to report to work during the notice period, but were to be fully paid through December 30, 1992. During the notice period, employees were permitted, but not required, to use the employer's resource center, which offered employees services to help them find new jobs. The Board held that the claimants were unemployed during the notice period because they did not perform services for the employer and the payments made to the claimants were dismissal payments, not wages. Both the Circuit Court and the Court of Special Appeals affirmed the Board's decision.

 

Severance Pay, Dismissal Payment or Wages in Lieu of Notice - Section 8-1009

I. In General

 

A. Md. LABOR AND EMPLOYMENT Code Ann. § 8-1009 (2010)

§ 8-1009. Severance pay

(a) Dismissal payments or wages in lieu of notice. --

(1) For each week that the Secretary finds an individual who otherwise is eligible for benefits receives or is eligible to receive dismissal payment or wages in lieu of notice, regardless of whether the payment is required by law:

(i) if the payment at least equals the individual's weekly benefit amount, the individual is disqualified from receiving benefits; or

(ii) if the payment is less than the individual's weekly benefit amount, the individual may receive benefits reduced by the amount of the payment.

(2) Dismissal payment or wages in lieu of notice shall be allocated to a number of weeks following separation from employment that equals the number of weeks of wages received.

(b) Military disability severance payments. -- An individual who is otherwise eligible for benefits, including benefits payable under the Unemployment Compensation for Ex-Service Members Program in accordance with 5 U.S.C. § 8521 may receive benefits, and the benefits may not be reduced under subsection (a)(2) of this section, for each week that the Secretary finds that the individual receives or is eligible to receive military disability severance payments.

B. Extent of Disqualification
The claimant was discharged on December 31, 1989. The employer gave him severance pay in the amount of $1,923. His weekly wage with the employer was $961.54. COMAR 09.32.02.13B(2) states that the formula for allocation of dismissal payments shall be to divide the weekly wage of the individual by seven and apply the quotient for each calendar day following payment. Applying this formula, the quotient is $137.36 ($961.54 divided by 7); the severance pay therefore covers a period of 14 days ($1,923 divided by $137.36), from January 1, 1990 up to and including January 14, 1990. The claimant is totally disqualified from receiving benefits for the weeks ending January 6, 1990 and January 13, 1990. For the week ending January 20, 1990, a deduction of $137 (rounded off from $137.36) for wages paid for January 14, 1990, should be made from his weekly benefit amount of $205. Harkins v. Fullerton Supply Company, Inc., 808-BH-90.

In determining the claimant's weekly pay, the claimant's commissions, as well as her salary, should have been counted. Since the claimant earned $17,000 total remuneration for ten months' work, her total weekly remuneration (salary and commission) averaged $395 per week. The severance pay received by the claimant equals only one week's pay. Since the claimant received only one week's pay, she should be disqualified for only the one week immediately following separation. The fact that she received the severance pay in two separate checks is irrelevant. Jenkins v. Manning Broadcasting, Inc., 290-BR-91.

The Board ruled the claimant received a severance amount which equaled wages for a 14 day (2 week) period. However, the plain and ordinary meaning of "week" is 7 days. The Board found that "the same wage amount . . . that an individual received while employed" is limited to an amount equaling payment for services for "each week" (7 days) of services provided. This case addresses severance calculations involving a 24 pay-per-year basis instead of the traditional 26 pay-per-year basis. Howe v. DeCaro, Jeffrey, et al., 0-BR-00 (2002)

C. Payments Which Constitute Severance Pay
At the time of her layoff, the claimant was paid a lump sum "nonvested pension;" this amount was obtained from a special employer fund for "closing costs" and was intended to provide additional severance pay to certain employees who did not have vested pension rights. The lump sum is properly considered severance pay under Section 8-1009 and not a pension, annuity, retirement or retired pay under Section 8-1008. The money was not obtained from a pension fund and was intended as additional severance pay to those employees, including the claimant, who lost their opportunities to gain vested pension rights due to the closing of the store. Carey v. Stewart and Company, 717-BH-83.

Payment made to the claimant as part of an agreement with the employer to end the claimant's employment contract is dismissal pay or wages in lieu of notice. The employer had the right under the terms of the contract to terminate the claimant's services for "unsatisfactory performance." These facts are distinguishable from those in the Board precedent, Bohager v. Waste Management, Inc., 522-BH-85. (See below). In Bohager, the employer did not have contractual grounds to terminate the claimant's employment; the payment was made in consideration of cancellation of the contract. In this case, however, the employer's decision to terminate the claimant was within the provisions of the contract; thus, the payment made was wages in lieu of notice. Riall v. Town of Berlin, 226-BH-93.

D. Payments Which Do Not Constitute Severance Pay
The employer prematurely terminated the claimant's services under a written three-year contract of employment. The contract itself did not provide for dismissal payments, but the claimant negotiated with the employer and received a $50,000 payment in return for early cancellation of the contract and a change in the noncompetition clause of the contract. This payment constitutes consideration for both the cancellation of the contract and the noncompetition clause and is not wages in lieu of notice or a dismissal payment. The $50,000 received is thus not deductible under Section 8-1009. Bohager v. Waste Management, Inc., 522-BH-85.

Neither party was absolutely certain whether the two checks the claimant received were severance pay, pay for past work or payments made to remunerate the claimant for commissions already earned but not yet paid. Since the employer had control of the records, it is appropriate to place the burden on the employer to demonstrate that the payments were severance pay. Since the employer did not meet its burden with enough evidence to find that the payments were severance pay, the payments were not deductible from benefits. Wilkerson v. Closet Crafters, Inc., 1105-BR-89.