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


The provisions dealing with the severance pay were previously located in Article 95A, Section 6(h) of the Annotated Code of Maryland. After the law was revised in 1991, these provisions were recodified as Section 8-1009 of the Labor and Employment Article of the Annotated Code.

COMAR defines “severance pay” as the gross amount of severance pay, dismissal pay, pay instead of notice of termination, wage continuation, 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: (a) Calculate the entire amount of severance pay; (b) Calculate the claimant’s daily wage by dividing the claimant’s last weekly wage by seven; (c) Calculate the number of days to which the severance pay applies by dividing the total amount of severance pay by the claimant’s daily wage; and (d) Apply the severance pay to the days immediately following the claimant’s last day of service. 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. Extent of Disqualification
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)

B. 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.

Payments 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.

C. 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 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.