Severance Money Is Not An Improper Gift
February 25, 2008
The 1st District Appellate Court recently held that a severance package, triggered by a village manager's termination by an outgoing village board of trustees, did not constitute an improper gift of public funds and was not otherwise violative of applicable statutory provisions. Village of Oak Lawn v. Faber, 2007 Ill.App. Lexis 1356 (Dec. 21, 2007).
Barry L. Moss, David J. Freeman and Jeffrey Mark Alperin of Tressler, Soderstrom, Maloney & Priess LLP, represented the Village of Oak Lawn. Mathias Delor, Sara M. Gadola and Camille A. Cribaro-Mello of Robbins, Schwartz, Nicholas, Lifton & Taylor represented the former village manager, Joseph Faber.
Faber became the village manager in 1993. He entered into a contract in 1999 continuing his employment through April 24, 2001. That contract provided, among other things, that if the village decided to terminate his services, which it could do at any time, he would receive nine months' salary as a severance benefit; and, moreover, if the village declined to renew his employment within 30 days after the termination date, he would also receive nine months' salary as a severance benefit. Under the contract, the severance benefit would not apply if he resigned or if he were terminated for cause.
In 2001, the village board and Faber entered into a first amendment to his employment contract, thereby extending his employment until the first regular meeting of the board in April of 2005, which turned out to be April 12, 2005. All the other terms and conditions of his employment were left unchanged.
On April 5, 2005, a new village president and two new trustees were elected, and were scheduled to take office on May 10, 2005. On April 27, 2005, however, the outgoing board and Faber entered into a second amendment to his contract extending his term until May 10, 2005. Then, on May 9, 2005, the day before the new president and board members were to take office, the outgoing board met again and terminated Faber's employment, which triggered his nine-month salary severance benefit. The benefit was eventually paid in full.
The village brought suit contending that the circumstances surrounding Faber's termination and severance benefit "smacked of impropriety" and was otherwise illegal and should not have been paid. The parties filed cross motions for summary judgment and the circuit court held for Faber. The village then brought this appeal.
In an opinion by Justice Joseph Gordon, the 1st District affirmed. He noted at the outset the village's principal contention on appeal, which was that had the outgoing board not terminated Faber, the new board would not have been obligated to pay the severance benefit, and that the severance benefit therefore constituted an impermissible gift of public funds, a violation of the code of ethics, and unjust enrichment for Faber.
Gordon disagreed with the village's interpretation of Faber's employment contract. He observed that under the terms of the original agreement and its amendments, there were only two circumstances under which Faber would not be entitled to his severance: if he resigned or if he were terminated for cause. In all other circumstances -- e.g., if his agreement expired without extension, or if the village terminated him at will -- he would be entitled to the severance.
Consequently, according to Gordon, the outgoing board's termination of Faber did not give him anything to which he would not be entitled to claim from the new board. The termination simply spared him the burden of having to assert his contractual right to severance against the new board, which apparently was disinclined to honor the agreement.
Gordon then addressed the village's specific arguments. It initially contended that the severance benefit constituted an unconstitutional gift of public funds in violation of the Illinois Constitution, which restricts the use of public funds to public purposes. Ill. Const. 1970, art 8, [sec] 1. The village argued that Faber did not perform work to earn the severance and that his past performance did not constitute adequate consideration.
Gordon rejected the point in partial reliance on an attorney general opinion suggesting that severance benefits for public employees agreed to in advance constitute deferred compensation and are not gifts and not prohibited. 1997 Ill. Att'y Gen. Op. 020. Here, said Gordon, the consideration provided by the village to Faber included not only his salary but also the severance package that was deferred until the end of his employment.
The village further argued that the severance pay had no public benefit whatever, but Gordon found that it helped to secure the professional commitment of an individual in an essential municipal government position. Gordon rejected the village's arguments that the pay violated the village's code of ethics and amounted to unjust enrichment for similar reasons: the severance pay constituted part of Faber's compensation, and just because the village is unhappy with the deal it struck does not mean it should not honor its commitment.
The village also argued that the two amendments to Faber's employment agreement extended the term of his employment beyond the term of the village president in light of the post-termination renewal period. The village thus claimed that the amendments violated section 8-1-7(b) of the Municipal Code, 65 ILCS 5/8-1-7(b), which prohibits contracts for municipal managers to exceed the term of the mayor or president.
Gordon disagreed again, noting that Faber was at all times terminable at will, and thus regardless of any potential overlap of his employment into the new board's term, the new officials were never bound to employ him. Gordon further observed that the purpose of the overlap of his employment into the new board's term was to provide for continued service until new service could be secured, either from Faber or from someone else.
Finally, the village argued that the agreements with Faber, extending his employment for specific periods of time, violated the Municipal Code's requirement that the village manager's term be indefinite. 65 ILCS 5/5-3-7. In response, Gordon reiterated that Faber's employment was at all times terminable at will, and that his employment therefore was, in fact, indefinite because the dates expressed in the agreements did not guarantee him employment for those periods and they did not limit the board's authority to terminate him.
The court therefore affirmed summary judgment in favor of Faber.
