Microsoft gaffe illustrates importance of administration of severance programs

For today’s worker, there is perhaps nothing more terrifying than being told that you are being laid off. The companies that can soften the blow with severance often do so. Imagine, though, that you have just been laid off, and receive in the mail from your former employer a letter telling you that your severance pay was miscalculated and that you have to return some of it. That is exactly what happened last week to a group of employees recently laid off by Microsoft.

The letters advise of the administrative error and the severance overpayment, and request repayment of the overage within 14 days. The letter does not spell out what consequences one could suffer by ignoring the request and keeping the extra cash. The legal fees in brining a lawsuit to collect each overpayment probably outweigh the amounts of the overpayments by several times, thus making legal action against the individuals unlikely. But, one never knows.

What a nightmare for Microsoft. It is unknown how many of the 1,400 laid-off employee were overpaid. Assume, however, that every employee was overpaid two weeks at an average salary of $1,000 per week. That mistakes would equal a potential $2.8M nut. The question for Microsoft is whether that amount of money (whatever it is) is worth the awful publicity that is being generated by the appearance of kicking these employees when they are down.

So, what lessons can other employers learn from Microsoft’s mistake?

1. Layoffs are time and paper intensive. They are often put together quickly under tremendous time constraints. They are also paperwork intensive. Decisions need to be made who to lay off, how and when to communicate the layoff, whether the layoff appears discriminatory by the demographics of the included employees, and whether to pay severance and if so how much. If releases are sought they must be drafted, and, very importantly, for workers over 40, OWBPA disclosures must also be drafted. In other words, layoffs are prone to mistakes. Take the time to make sure they are done properly in every aspect. It is much easier to do a layoff correctly than undo it when a mistake is made.

2. Especially in 2009, layoffs are very sensitive for employees. They must be delicately handled. How employees are told the news goes a long way in determining whether they will sign a release or go talk to a lawyer.

3. If a mistake is made, equal care should be taken in how to communicate that mistake to employees. If you ask for reimbursement of an overpayment, it is not a bad idea to actually show how the overpayment was calculated. Think about it. Are you more likely to send a check in response to a letter that simply says we overpaid you, or explains with detail how the overpayment happened?

My advice to Microsoft would be simple – you made the mistake, and you asked for the money back. Even if nary and employee reimburses you, I would chalk this mistake up to a lesson learned in how to handle layoffs and drop the issue.

[Hat tip: The Boy Genius Report]