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Federal Register / Vol. 86, No. 11 / Tuesday, January 19, 2021 / Rules and Regulations covenant not to compete is a payment that is contingent on a separation from employment if the payment would not have been made in the absence of an involuntary separation from employment. For example, a payment contingent on compliance in whole or in part with a covenant not to compete negotiated as part of a severance arrangement arising from an involuntary separation from employment is contingent on a separation from employment. Similarly, one or more payments contingent on compliance in whole or in part with a covenant not to compete not negotiated as part of a severance arrangement arising from an involuntary separation from employment but that provides for a payment specific to an involuntary separation from employment and not voluntary separation from employment is contingent on a separation from employment. Payments made under an agreement requiring a covered employee to refrain from performing services that are contingent on separation from employment are not treated as paid in exchange for the performance of services and are not excluded from parachute payments.
4 Payment of amounts previously included in income or excess remuneration. Actual or constructive payment of an amount that was previously included in gross income of the employee is not a payment contingent on a separation from employment. For example, payment of an amount included in income under section 457f1A due to the lapsing of a substantial risk of forfeiture on a date before the separation from employment generally is not a payment that is contingent on a separation from employment, even if the amount is paid in cash or otherwise to the employee because of the separation from employment. In addition, actual or constructive receipt of an amount treated as excess remuneration under 53.49604b1 is not a payment that is contingent on a separation from employment and thus is not a parachute payment, even if the amount is paid to the employee because of the separation from employment.
5 Window programs. A payment under a window program is contingent on a separation from employment. A
window program is a program established by an employer in connection with an impending separation from employment to provide separation pay if the program is made available by the employer for a limited period of time no longer than 12
months to employees who separate from employment during that period or
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to employees who separate from service during that period under specified circumstances. A payment made under a window program is treated as a payment that is contingent on an employees separation from employment notwithstanding that the employee may not have had an involuntary separation from employment.
6 Anti-abuse provision.
Notwithstanding paragraphs d1
through 5 of this section, if the facts and circumstances demonstrate that either the vesting or the payment of an amount whether before or after an employees involuntary separation from employment would not have occurred but for the involuntary nature of the separation from employment, the payment of the amount is contingent on a separation from employment. For example, an employers exercise of discretion to accelerate vesting of an amount shortly before an involuntary separation from employment may indicate that the acceleration of vesting was due to the involuntary nature of the separation from employment and was therefore contingent on the employees separation from employment. Similarly, payment of an amount in excess of an amount otherwise payable for example, increased salary, shortly before or after an involuntary separation from employment, may indicate that the amount was paid because the separation was involuntary and was therefore contingent on the employees separation from employment. If an ATEO becomes a predecessor as a result of a reorganization or other transaction described in 53.49601h, any payment to an employee by a successor organization that is contingent on the employees separation from employment with the predecessor ATEO is treated as paid by the predecessor ATEO.
e Involuntary separation from employment1 In general.
Involuntary separation from employment means a separation from employment due to the independent exercise of the employers unilateral authority to terminate the employees services, other than due to the employees implicit or explicit request, if the employee was willing and able to continue performing services as an employee. An involuntary separation from employment may include an employers failure to renew a contract at the time the contract expires, provided that the employee was willing and able to execute a new contract providing terms and conditions substantially similar to those in the expiring contract and to continue providing services. The
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determination of whether a separation from employment is involuntary is based on all the facts and circumstances.
2 Separation from employment for good reasoni In general.
Notwithstanding paragraph e1 of this section, an employees voluntary separation from employment is treated as an involuntary separation from employment if the separation occurs under certain bona fide conditions referred to herein as a separation from employment for good reason.
ii Material negative change required.
A separation from employment for good reason is treated as an involuntary separation from employment if the relevant facts and circumstances demonstrate that it was the result of unilateral employer action that caused a material negative change to the employees relationship with the employer. Factors that may provide evidence of such a material negative change include a material reduction in the duties to be performed, a material negative change in the conditions under which the duties are to be performed, or a material reduction in the compensation to be received for performing such services.
iii Deemed material negative change. An involuntary separation from employment due to a material negative change is deemed to occur if the separation from employment occurs within 2 years following the initial existence of one or more of the following conditions arising without the consent of the employee:
A Material diminution of compensation. A material diminution in the employees base compensation;
B Material diminution of responsibility. A material diminution in the employees authority, duties, or responsibilities;
C Material diminution of authority of supervisor. A material diminution in the authority, duties, or responsibilities of the supervisor to whom the employee is required to report, including a requirement that an employee report to a corporate officer or employee instead of reporting directly to the board of directors or similar governing body of an organization;
D Material diminution of budget. A
material diminution in the budget over which the employee retains authority;
E Material change of location. A
material change in the geographic location at which the employee must perform services; or F Other material breach. Any other action or inaction that constitutes a material breach by the employer of the
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