United States: Exiting Employee Obligations

Published in NH Business Review (8/27/2021)

As New Hampshire businesses continue to navigate the evolving COVID-19 landscape, it is important that they are well prepared for employee separations, whether voluntary or involuntary.  Former employees are ambassadors of a company's name and brand—therefore, the goal is to have a positive departure (or as much as is possible).  Key to this goal is ensuring that departing employees are properly compensated.  Doing so not only avoids potential legal exposure, but can reinforce a professional, amicable separation. 

Employment Agreements

When contemplating a potential separation, employers should first look to the applicable employment agreement with an employee.  Is the employee employed “at will” (in other words, can the employment relationship be terminated at any time, with or without notice)?  Or is the employee employed for an established period of time?  Separately, is the employee entitled to severance upon separation?  The answers to these questions are crucial in understanding legal obligations to separated employees. 

A strategic approach to terminations begins with a strategic approach to hiring.  Despite all hope and optimism at the outset of an employment relationship, employers should have flexible employment agreements that are tailored for particular positions. Among other things, these agreements can provide a clear framework for compensation upon an employee's separation.

New Hampshire Law

Beyond contractual considerations, employers conducting business in New Hampshire should primarily look to New Hampshire state laws related to terminations.  If an employee quits, resigns, or is laid off, the employer must pay the employee on the next scheduled payday.  If, however, a resigning employee provides the employer with at least one pay period's notice, or if the employer does not let the employee work the notice period, the employer must pay all wages owed within 72 hours of the employee's final day.  Similarly, if an employer terminates an employee, the employer must pay all wages to the employee within 72 hours. 

New Hampshire law may also obligate employers to pay involuntarily terminated salaried employees for a full pay period, even if the employee worked only a portion of that period.  There are some discrete exceptions to this mandate, such as when the salaried employee is terminated for cause.  Nevertheless, employers should use discretion in terminating salaried employees—more often than not, that employee will be entitled compensation for a full pay period.

There are real consequences to an employer's failure to meet these obligations.  An employer that willfully or without good cause fails to timely pay final wages may be liable for 10 percent of the unpaid wages for each day overdue (excluding Sundays and holidays).  The employer may also be obligated to pay attorneys' fees.  It is therefore critical that employers understand their financial obligations to employees prior to termination.

Policies and Benefits

When preparing for a separation, employers should also understand what benefits, if any, are due to the departing employee.  In large part, such benefits are guided by an employer's own policies.  For example, are employees entitled to unused vacation time upon separation?  How much?  Similarly, are employees due unused sick or personal time?  Employers should look to their employee handbook (and update it, if needed) to understand their obligations.  Whatever is owed should be paid in a consistent manner as the wages due. 

Employers should also understand their obligations for health insurance under the Consolidated Omnibus Budget Reconciliation Act (COBRA).  While there are numerous elements of COBRA that employers should be aware of, the primary issue relating to paying former employees comes as a result of the recently enacted American Rescue Plan Act of 2021 (ARPA).  Under ARPA, employers are required to pay 100% of the premiums required under COBRA for former employees who are enrolled, or will enroll, in COBRA continuation coverage through September 30, 2021.  Employers may be reimbursed for the premium through a payroll tax credit.  Employers should contact their benefits administrator for how their plans are impacted by this new, yet temporary, mandate.

Severance

One misconception many employers make is that they must pay severance to departing employees.  Unless an employment agreement with a particular employee requires severance upon termination, there generally is no requirement to provide severance pay. 

Nonetheless, severance and release agreements, if well drafted, provide employers valuable opportunities to avoid costly litigation.  These agreements should include protections, such as a release of claims and non-disparagement and confidentiality duties.  To avoid unwelcome challenges, employers should update their agreements to ensure they comply with all applicable New Hampshire and federal laws. 

Parting ways can be stressful and uncertain for all parties involved.  Businesses' best tool to manage these pressures is to be prepared.  In large part, that comes from understanding the legal obligations to compensate departing employees, and by updating related employment agreements, employee policies, and model separation agreements. 

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.