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How Do You Handle More Layoffs?

One round of layoffs is bad enough for rank-and-file morale. Subsequent layoffs can be even tougher on remaining employees, who may mourn the loss of their colleagues and wonder if they will be next. Employers can take steps to limit the damage and avert potential liability problems before and during the layoff process. Open communications before and after layoffs, to the extent possible, can help workers come to terms with the layoffs.

Under the Older Workers Benefit Protection Act, employees who are 40 years old or older are guaranteed time to think about whether or not to sign a release—21 days if only one person is being laid off, 45 days if two or more are laid off. After signing, they have another seven days to revoke the acceptance of the agreement.

When the release is signed in exchange for a severance package, the separation agreement must list the job titles and ages of all employees in the organizational unit, showing which are being laid off and which are not, explained Neil Capobianco, a McDermott partner in New York City, in a recent article by the Society for Human Resource Management (SHRM).

Access the article.




The 10 Most Significant Matters CEOs Should Know About Their Employment Contracts

The most significant issues in any employment or severance agreement are going to be personal to that situation, and will be driven in part by special issues and circumstances. For instance, succession planning issues may be incredibly important to the organization when the CEO is 65 years old and there is no clear successor, and may be far less important when the CEO is 45 and there are very able executives ready to assume the CEO role if necessary. With that said, there are certain considerations to keep in mind for all who are drafting these contracts.

McDermott’s Ralph E. DeJong contributes to an article in The Practical Lawyer that identifies and describes what frequently are the most important considerations in an employment or severance agreement between an exempt organization and its CEOs.

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Originally published in The Practical Lawyer, December 2019




7 Severance Structuring Tips for Tax-Exempt Colleges and Universities

In-house counsel and human resources professionals at tax-exempt colleges and universities often face a variety of challenges when structuring, and determining obligations due under, severance arrangements. There are some key considerations to bear in mind, which are outlined in this article.

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April 15th Deadline for Filing FICA Refunds for Severance Pay

by Robin Greenhouse, Andrew Liazos and Ruth Wimer

Severance pay due to an involuntary separation from employment resulting from a reduction in force, plant shutdown or similar condition may be exempt from FICA taxes.  As we reported in September 2012, the U.S. Court of Appeals for the Sixth Circuit found in Quality Stores that severance pay is not required to be tied to continued eligibility for unemployment benefits in order to be exempt from FICA.  (Click here for more details regarding the Quality Stores decision.)  Shortly after this decision the Internal Revenue Service (IRS) requested that the Sixth Circuit reconsider its decision in an en banc review (i.e., a hearing before all judges on the circuit court).  Earlier this month, the Sixth Circuit denied this request.

The Quality Stores decision creates a clear split with the U.S. Court of Appeals for the Federal Circuit.  In light of the Sixth Circuit’s denial, the IRS will likely file a writ of certiorari with the Supreme Court of the United States seeking a reversal of the Quality Stores decision.  For now, the IRS is refusing refund claims outside of the Sixth Circuit and taking no action with respect to refund claims within the Federal Circuit (states within the Sixth Circuit are Kentucky, Ohio, Michigan and Tennessee).  For now, employers should continue withholding FICA taxes on severance pay that is not tied to unemployment benefits.

Employers that have made severance payments due to reductions in force, plant shutdowns or similar conditions should consider filing protective FICA tax refund claims.  Only a limited period of time is available to file.  In general, the statute of limitations for tax refund claims is three years.  As a result, April 15, 2013, is the due date for taxpayers for filing a refund claim with respect to the 2009 calendar year.  A refund claim cannot be filed with respect to severance payments made before 2009.

Filing a protective claim is relatively simple to do.  It is not necessary that the protective claim include exact calculations and employee consents for the refund filing.  This information and the required employee consents can be provided at a later time in a supplemental filing.  It is recommended that all employers file protective claims, particularly with respect to severance payments made to employees located in the Sixth Circuit.

If a FICA tax refund has been filed and the IRS has issued a notice of claim disallowance, the taxpayer must either (i) bring suit to contest the disallowance within two years after the issuance of this notice or (ii) obtain an extension of the time to file such a suit with the IRS—this process can be initiated by filing IRS Form 907, Agreement to Extend the Time to Bring Suit.




December 31 Deadline to Update Severance, Employment and Change in Control Agreements

by Jonathan J. Boyles

Agreements that require a release or other signed document from an employee before payment should be reviewed to ensure compliance with Code Section 409A guidance.  Transition relief ends on December 31, 2012, and the penalties for noncompliance can be harsh.  Employers that conducted a fulsome Code Section 409A review in 2007 and 2008 should ensure their arrangements are in compliance with new guidance.

To read the full article, click here.




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