Employer Issues: Volume 1 - Are Severance Payments a Wage?


Ronald Piacquadio v. Vertis, Inc.

This case involved an employee, Piacquadio, who sued his former employer for failure to pay his promised severance. Piacquadio began working for Vertis as an account executive in 2002. In 2008, rumors started to circulate that Vertis was not doing well financially and may need to stop doing business. Vertis offered certain employees, Piacquadio among them, special severance packages as incentive to keep them during the difficult times. It was called a Key Employee Agreement (KEA) which provided for severance payments so long as the employee met certain requirements. Among the requirements were that the employee would remain with Vertis for as long as they required and that the employee would perform all tasks assigned to them. Also required was the signing of a Business Responsibilities Agreement which also dictated that the employee must perform all tasks assigned, return all company property upon termination and sign a release on the last day of employment. Finally, the KEA stated that if the employee resigned or was terminated for “cause,” they would not be entitled to the severance payments.

Piacquadio stayed with Vertis through the Chapter 11 Bankruptcy proceedings and for the next two years while they operated. However, Vertis filed Chapter 11 second time, and during that process, Piacquadio was terminated for alleged poor performance and the severance payments were not paid. He contended the poor performance was contrived as a means of avoiding payment of the severance. As a result, this suit was filed for breach of contract and violation of the Maryland Wage Payment Law. Vertis filed a Motion for Judgment arguing that the severance payments were not wages under the statute. The United States District Court for the District of Maryland held that the severance are wages.

Maryland has a two-part test for determining whether a payment is a wage: 1.) Payment must have been promised as part of the compensation for the employment arrangement and 2.) All conditions agreed to in advance for earning the compensation must have been fulfilled. There was no question that the KEA met the first prong of the test and that Piacquadio fulfilled all necessary requirements. Vertis argued that payments made in consideration for post-employment behavior, such as non-compete agreements, are not wages. The Court disagreed.

The Court reasoned that severance paid as deferred compensation for performance during employment were wages but not if the severance represented a quid pro quo for a non-compete agreement. There was nothing in the KEA that stated the payments would stop if Piacquadio was found to be competing post-employment. Ultimately, the Court concluded that compensation must be conditioned on an employee's actual performance of post employment obligations, not just an agreement to them, before the compensation is removed from the category of wages. Here there was no such condition.