Following the Federal Reserve’s interest rate increases and the resulting volatility in the stock markets, economists and government officials continue to debate whether the country will experience a hard or soft landing, or no landing at all. While some sectors of the economy remain strong, others have begun to see layoffs. In the face of this uncertainty, employers facing the prospect of downsizing would be wise to take steps now to minimize the financial risks from litigation by workers who suffer loss of employment.

Employers planning reductions-in-force frequently seek to reduce their exposure to employment litigation by offering affected workers severance benefits in exchange for waivers of their employment litigation claims. While some businesses maintain formal policies governing their severance pay practices, others choose to provide discretionary severance benefits on a case-by-case basis. Employers in this latter group often are surprised to learn that offering workers severance pay on an ad hoc basis can itself lead to claims for additional severance benefits. Employees frequently have argued in litigation that an employer’s informal severance practice actually created a welfare benefit plan under the Employee Retirement Income Security Act of 1974, 29 U.S.C. Section 1001 et seq. (ERISA).