Tuesday, June 16, 2015

Is a Retention Bonus The Same as Severance Under Pennsylvania Unemployment Law?

Retention Bonuses Are Offered to Keep You Employed - Severance is Offered On Account of You Leaving Employment

I recently became aware that the Pennsylvania Department of Labor is taking the position that retention bonuses are the same as severance for unemployment purposes.  This is affecting the rights of hundreds of displaced Pennsylvania workers, who are being denied unemployment benefits.

I have seen an internal memo from the Department of Labor addressing this issue.  It reads in pertinent part as follows (ALL CAPS in original):

Retention Bonus is a tricky subject….”Severance pay” means one or more payments made by an employer to an employee ON ACCOUNT OF SEPARATION from service of the employer.  The retention bonus in this case was paid because of the separation and moreover, at the time of the separation and filing for benefits.

Retention Bonus Paid
When You Are Asked to Stay
Retention or "Stay On" Bonuses Are Not Severance Payments

Contrary to what the DOL's internal memo says, retention bonuses are not paid because a business is closing.  They are paid to keep an employee working UNTIL a business closes.

Retention bonuses are paid to encourage people employed by companies that have been sold ("Company Sold") to another company ("Buying Company") to remain in the employ of Company Sold for a period of months, after which they will be laid off when Buying Company assumes control of Company Sold.

Usually, in addition to a retention bonus, the to-be-displaced employees are also paid a severance when the change in control occurs.

Severance Paid
When You Are Told to Leave
If the retention bonus is in excess of roughly $19,417, the Department of Labor is construing the bonus as severance, and denying benefits.

Dead Wrong on This One
This is inconsistent with Pennsylvania law.

If you appeal such a determination by the Department of Labor's Service Center, and prepare properly for the ensuing Referee Hearing, you can win this case (even if you have to subsequently appeal to the Board of Review).

This promises to be a contentious legal issue, as the Department of Labor has been, and remains, dead serious about maximizing the applicability of the 2012 severance amendment in order to preserve unemployment fund assets.  Since it it involves a somewhat tricky legal analysis, and will likely lead to appeals, you may want to consider counsel for your Referee Hearing is this situation arises in your life.

Helping Pennsylvania Workers Since 1991
Philadelphia Area Employment Attorney Representing Employees

John A. Gallagher is an employment lawyer who represents employees in Pennsylvania. 

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