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On Wednesday, February 21, 2007, the Joint Standing Committee on Labor heard legislation submitted by the Maine Department of Labor designed to significantly increase penalties on employers who fail to comply with Maine’s severance pay law.
LD
392, An Act to Establish Penalties for Violation of the Severance Pay
Law, submitted by Rep. Herb Clark (D-Millinocket) on behalf of the Maine DOL, seeks to add penalties when a business fails to give 60 days’ notice on their intent to relocate or close, as well as establish a new penalty section in the law for failure to pay a severance obligation. Specifically, the new section of law would fine an employer at least $1,000 per violation for failure to pay, and each employee who failed to receive his or her severance wages would constitute a separate violation.
The issue of severance pay has seen significant legislative action during the past five years. The actual law mandating severance pay has been part of Maine law since the 1970s. However, in 2005, the focus of what triggered a so-called “covered event” thereby triggering a severance obligation on the part of the employer was significantly altered. Instead of being triggered by either a plant closure or relocation out of state, rules adopted by the Maine DOL, and eventually ratified by the legislature, created new triggers … initiated by either lay-offs, a drop in overall hours worked, or a drop in production output.
The proposed new penalty could prove problematic for a struggling company. The new triggers are subjective, and the director of the Bureau of Labor Standards is responsible for making the initial ruling on whether or not the triggers have been met. The Maine State Chamber expressed its empathy for ensuring that a company paid severance pay to deserving workers. However, the impact of a substantial fine on a struggling company, that may in fact be in a legitimate dispute over whether or not the “trigger” had been met could find itself saddled with a big fine … on top of trying to stay afloat. Such a hefty fine may be the last straw, forcing a company to close its doors, and maybe even file bankruptcy. It should be noted that bankruptcy voids severance obligations. In addition, a significant fine could leave a company in the midst of closing its doors without the means to pay severance wages. Fines go to the state and general fund, whereas severance wages go to the employees.
Lastly, such a steep fine may scare off a potential buyer of a closed or struggling company. The purchase of such a company is full of risk, included in that risk is the possibility of severance obligations should the company eventually fail. A fine over whether or not the “triggers” had been reached prior to purchase may be all that’s needed to scare off a buyer … and keep people employed.
The Maine State Chamber will be present at the work session on this bill next week and will continue to assist the committee in trying to find some middle ground on this issue. For additional information, please contact Peter Gore by calling (207) 623-4568, ext. 17, or by emailing
pgore@mainechamber.org.
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