Now Severance Packages Are on the Chopping Block

(page 2 of 2)

Not that the waivers always guarantee peace. Phillip Woolston signed one when he was let go from his computer help-desk job in Tustin, Calif., by Toshiba America Medical Systems (TOSOF) last year. But in September he sued Toshiba for allegedly failing to pay him overtime. (His attorney, Michael L. Tracy in Irvine, Calif., contends that the law does not allow waivers of wage claims.) Toshiba in turn has sued Woolston for violating the waiver agreement and is seeking his severance payments back.

Employees' ability to improve a severance offer has declined as the economy has tightened. "For years and years we could always negotiate an enhanced severance package," says Robin Potter, a Chicago attorney who represents employees. Now, Potter says, company representatives are telling her: "We don't have a budget for that." Cliff Palefsky, a San Francisco attorney who frequently represents senior managers from Silicon Valley, says he's seen an increase in companies scrutinizing years of expense reports and checking if a terminated executive visited inappropriate Web sites, all with the aim of denying severance by alleging "made-up, frivolous assertions" of improper conduct.

Sometimes the money simply isn't there. On Oct. 3, Lehman Brothers sent a letter telling workers it fired earlier this year that their severance payments were being cut off immediately because of the firm's Chapter 11 filing. Employees must now line up in bankruptcy court with other creditors to see what they can recover.

The best exit packages often go to those at the upper echelons. Matthew A. Kaufman, an attorney in Sherman Oaks, Calif., says he was consulted by a Countrywide Financial mortgage executive whose compensation was halved after Countrywide was acquired by Bank of America (BAC) in July. Countrywide's change-of-control severance plan offers generous payouts to those who suffer a pay reduction following an acquisition, which it deems tantamount to getting fired. But that's only for senior managing directors or above. The executive, who still works there, is just below that rung. Bank of America says its own plan would give severance to lower-ranking employees if their pay were significantly reduced.

Alsman, for one, refused to accept Ford's severance offer. Instead, she and about a dozen other former employees have gone to court, alleging that Ford violated federal benefits law when it classified the Visteon workers as new hires. Kevin M. Carlson, a Royal Oak (Mich.) lawyer representing the claimants, alleges in an interview that the company deliberately engaged in a "benefits avoidance scheme." In a court filing, Ford says its treatment of Alsman and others as rehires was based on long-standing practice. Alsman may be unhappy with her exit package, but attorneys familiar with such lawsuits say she faces a high hurdle to prove it was illegal.

Orey covers corporations for BusinessWeek.