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What are the changes to Maine severance pay?

There are many labor law challenges that Maine employers must be aware of and stay in compliance with.  Businesses of certain sizes must adhere to certain requirements. One of these laws has to do with severance pay.  Recently, Maine legislatures made updates to Maine severance pay.  Let’s take a look the changes to the Maine severance pay law.

What is severance pay?

First, let’s take a look at how the federal government defines severance pay.  According to the U.S. DOL, severance pay is the compensation that an employer provides an employee when employment has ended for one of a few different reasons.  The amount of severance is usually based on length of employment for which an employee is eligible upon termination.  There is no requirement in the Fair Labor Standards Act (FLSA) for severance pay.  Severance pay is a matter of agreement between an employer and an employee.

What is Maine severance pay?

Maine labor laws do not generally require employers to provide employees with severance pay. Typically, if an employer chooses to provide severance benefits, it must comply with the terms of its established policy or employment contract.  However, according to statute 26:625B, if an employer closes or relocates an industrial or commercial facility that has employed 100 or more employees in the preceding 12 months, it must pay severance to each affected employee. The severance for each employee must be paid at a rate of one week’s pay for each year the employee was employed at the facility.

What are the changes to Maine severance pay?

LD 12, which takes effect 90 days after the state legislature’s special session adjourns, expands the type of employers subject to its severance pay law.

In addition to any final wages that employers must pay employees upon termination, Maine’s severance pay requirements provide severance pay to covered employees at a rate of one week’s pay for each year of service, including partial pay for any partial year, in the event the facility permanently closes, relocates, or experiences a mass layoff. The updated legislation removes the phrase “industrial or commercial” from current law, expanding the law to cover any employer that owns a facility which has employed at least 100 individuals in the preceding 12-month period.

What should businesses do?

It is important to know about these changes to the law.  If your business has 100 or more employees in the preceding 12-month period, and closes, relocates, or experiences mass layoffs, you now must pay severance to the affected employees.  This could potentially be a huge financial liability to your organization.  Be sure to financially prepare for this scenario should your business be in this situation.

Feel free to contact us for more information regarding this labor law change or for help in navigating other compliance challenges.