Court Opinion

ID: 4129460
Source: CourtListenerOpinion
Date Created: 2017-02-18 00:52:18.326186+00
Date Added: 2024-06-11T14:37:36.365318
License: Public Domain

OPFlCE OF THE ATTORNEY   GENERAL.   STATE OF TEXAS

   JOHN     CORNYN

                                                   May 22,200O

Mr. Jim Nelson                                              Opinion No. JC-0221
Commissioner of Education
Texas Education Agency                                      Re: Whether payments made to a departing
1701 North Congress                                         superintendent described as settlement of actual or
Austin. Texas 78701                                         contemplated litigation are “severance payments”
                                                            under section 11.201(c) of the Education Code,
                                                            and related questions (RQ-0142-JC)

Dear Mr. Nelson:

         You ask whether various amounts paid to a departing superintendent           are “severance
payments”under     section 11.201(c) ofthe Education Code that must be reported to the Commissioner
of Education and that are used to proportionately reduce a school district’s state funding. We
conclude that a section 11.201(c) “severance payment” is compensation paid to a superintendent
beyond his or her wages upon early termination of the employment relationship by a school district.
A payment, however, in settlement of actual or threatened litigation is not a section 11.201(c)
severance payment. A payment to a terminated superintendent described as a settlement of actual
or threatened litigation is a section 11.201(c) severance payment if there is no actual or bona fide
claim. Section 11.201(c) severance payments are not limited to amounts due under the terminated
employment     contract and do not exclude, as a matter of law, insurance premiums or benefit
payments made after the termination.       Payments for contrived consulting services are section
11.201(c) severance payments. Whether amounts paid in any particular case are severance payments
will depend on the termination agreement and the surrounding factual circumstances.

        You explain the circumstances           prompting    your request as follows:

                         Payments to departing superintendents often involve threaten-
                 ed or actual litigation between the superintendent and the district and
                 are thus often couched as settlements of numerous potential or
                 asserted causes of action by both parties. The [Texas Education
                 Agency] has understood the term “severance payment” to include all
                 payments made to a departing superintendent,          at least up to the
                 amount remaining due to the superintendent under the contract.
                 Several districts have taken exception to this position, contending that
                 payments in settlement of actual or contemplated litigation are not
                 within the definition of “severance payment.”
Mr. JimNelson      - Page 2                            (JC-0221)

                           . . .

                          Jn addition to payments made to superintendents who will no
                 longer be employed by the district, some districts have entered into
                 “consulting agreements” with former superintendents, often paying
                 them amounts very similar to the remaining payments under the
                 employment contract.

Letter from Jim Nelson, Commissioner of Education, Texas Education Agency, to Honorable John
Comyn, Texas Attorney General (Nov. 1, 1999) (on file with Opinion Committee) [hereinafter
“Request Letter”]. You first ask: “Are payments made to a departing superintendent that are
couched as settlement of actual or contemplated litigation with the district ‘severance payments’ as
contemplated by Section 11.201?” Id. (emphasis added). We conclude that they may be section
11.201(c) severance payments.

         Section 11.201(a) ofthe Education Code provides that a school district superintendent is the
educational leader and chief executive officer of the school district. TEX. EDUC. CODE ANN.
3 11.201(a) (Vernon 1996). Subsection (b) of section 11.201 authorizes a school board of trustees
to employ by contract a superintendent for a term not to exceed five years. Id. 5 11.201(b). Section
 11.201(c) of the Education Code, about which you ask, provides as follows:

                         A board of trustees of an independent school district that
                 makes a severance payment to a superintendent shall report the terms
                 of the severance payment to the commissioner.    The commissioner
                 shall reduce the district’s Foundation School Program funds for the
                 school year following the school year in which the first payment is
                 made by an amount equal to the severance payment made by the
                 board of trustees to the superintendent.

Id. 5 11.201(c). By its terms, this section expressly requires an independent
                                                                         school district to report
a “severance payment” made to its superintendent and the Commissioner of Education to reduce the
district’s Foundation School Program funds for the following school year by the amount of the
“severance payment.“’

        Neither section 11.20 1 nor any other provision in the Education Code defines “severance
payment” or prescribes its parameters. When the legislature fails to define a word or term, we must
ascribe to the word or term its ordinary meaning. Monsanto Co. Y. Cornerstones Mm. Util. Disk,

         ‘While section 11.201(c) does not further prescribe the duties of the Commissioner of Education, section
7.055(b) of the Education Code generally directs the commissioner to “prescribe a uniform system of forms, reports,
and records necessary to fulfill the reporting and recordkeeping requirements of this title.” TEX. ENC. CODEANN.
5 7.055(b)(4) (Vernon Supp. 2000). Both sections 7.055(b) and 11.201 of the Education Code are in title 2 of the
Education Code.
Mr. Jim Nelson   - Page 3                        (JC-0221)

865 S.W.2d 937, 939 (Tex. 1993); see also TEX. GOV’T CODE ANN. $ 311.011 (Vernon                1998)
(statutory words and phrases are to be read in context and construed    according to common usage
unless they have acquired technical or particular meaning).

         The ordinary meaning of “severance payment” is broad. The Oxford English Dictionary
defines “severancepayment”      as “moneypaid in compensation to one whose contractual employment
is terminated.”    XV OXFORD ENGLISHDICTIONARY 100 (2d ed. 1989). Similarly, Black’s Law
Dictionary defines “severance pay” as “[mloney (apart from back wages or salary) paid by an
employer to a dismissed employee.” BLACK’SLAWDICTIONARY1379 (7th ed. 1999); accordLubart
v. Commissioner, 154 F.3d 539,541 (5th Cir. 1998) (concluding that lump sum payment intended
to compensate for lost wages upon early retirement rather than to settle personal injury claims was
severance payment); Gujdu v. Commissioner, 158 F.3d 802, 805 (5th Cir. 1998) (same); Ball v.
Commissioner, 163 F.3d 308,309 (5thCir. 1998) ( same); Martin v. Mann Merchandising, Inc., 570
S.W.2d 208, 209 (Tex. Civ. App.-Eastland           1978) (severance payment usually associated with
termination of employment relationship for reasons generally beyond employee’s control), writ ref’d
n.r.e., 576 S.W.2d 781 (Tex. 1978). While not strictly part ofthe definition, Black’s Law Dictionary
additionally notes that: “Such a payment is often made in exchange for a release of any claims that
the employee might have against the employer.” BLACK’S LAW DICTIONARY1379 (7th ed. 1999);
id. at xviii (“Bullets” used to separate definitional information (before bullet) from information not
purely definitional (after bullet), such as encyclopedic information or usage notes); see&o Ball, 163
F.3d at 309 (laundry list of claims released by employee did not change severance into settlement
payment); Lubart, 154 F.3d at 542 (termination payment expressly conditioned on release of claims
remained severance payment). Thus, the ordinary meaning of“severance payment” is compensation
paid by an employer to an employee beyond his or her wages upon an early termination of the
employment relationship by the employer. And that is the meaning we ascribe to ,the phrase as used
in section 11.201(c) of the Education Code. We note that severance payments are often made in
exchange for release of any claims that the employee might have against the employer.

          The broad meaning ordinarily given to “severance payment” comports with the legislative
purpose of section 11.201(c). See Trimmier v. Carlton, 296 S.W. 1070,1074 (Tex. 1927) (ordinary
meaning to be given unless to do so would lead to absurdity or thwart legislative purpose). In
construing a statute, our primary objective is to give effect to the legislature’s intent. Mitchell
Energy Corp. v. Ashworth, 943 S.W.2d 436,438 (Tex. 1997). To do that, we consider the statutory
language, the object to be obtained, the circumstances under which the statute was enacted, and its
legislative history among other things. Id.; TEX. GOV’TCODE ANN. 5 311.023(l)- (3), (5) (Vernon
1998).

         By its terms, section 11.201(c) manifests a legislative policy against expenditure of school
district funds for “severance payments”: it does not prohibit severance payments (school districts
retain the discretion to make “severance payments”), but imposes a significant financial penalty for
making such payments. See TEX. EDUC. CODE ANN. 5 11.201(c) (Vernon 1996). This subsection
was enacted by the Seventy-fourth Legislature as part of Senate Bill 1 overhauling titles 1 and 2 of
the Education Code, see Act of May 27, 1995,74th Leg., R.S., ch. 260, 5 1, 1995 Tex. Gen. Laws
Mr. Jim Nelson    - Page 4                          (X-0221)

2207,2230, to “dissuade school districts from using state funds to pay for costly severance payments
when a school board terminates a superintendent’s contract.” SENATE COMM. ONEDUC., ~~THLEG.,
AN OVERVIEW OF SENATE BILL 1, THE RATLIFF-SADLERACT, at 3 (June 1995); see also Ellen
Williams: Education, 49 SMU L. REV. 901,923 (1996) (Senate Bill 1 attempts to dissuade school
board from making costly severance payments when terminating superintendent’s              contract by
requiring reduction in state funds). And, apparently, it was enacted in response to the use of school
district funds to “buyout” terminated superintendents’ contracts. See, e.g., Melanie Markley, School
Chiefs’ Pacts Loaded with Incentives/Reasons for the Clauses: Job’s High Turnover Rate, Hous.
CHRON., JULY 9,1995, at 29 (“Certainly, districts like Houston have discovered that it is often far
less costly to pay superintendents than to terminate them. HISD taxpayers still fume about the
$425,000 buyout of Joan Raymond’s contract in 1991.          High-cost buyouts in fact prompted the
Legislature this year to pass a law to discourage them.“); Request Letter, supra, at 1 (section
11.201(c) was adopted in 1995 “in response to legislative concerns about districts expending
substantial sums to buy out superintendents’ contracts”). While section 11.201(c) as enacted only
reduces the state funds a school district receives by the amount of the severance payment, the
introduced version withdrew all state money in the year following the one in which a school district
paid a severance payment: “A school district may not agree to pay a superintendent severance pay
equivalent to more than 12 months’ salary ifthe district dismisses the superintendent before the end
of the contract term. A district that enters into an agreement prohibited by this subsection is
ineligible to receive foundation school program funds for the school year following the school year
in which the agreement is entered into.” Tex. S.B. 1,74th Leg., R.S. (1995) (as introduced). Given
the statutory language of section 11.201(c), the circumstances of its adoption, and its legislative
history, we believe the legislature intended to strongly discourage use of school district funds to
compensate superintendents for early termination of their contracts by the board of trustees.

          Although a broad construction comports with the history and objective of section 11.201(c),
we do not believe “severance payment” includes a settlement payment for actual or threatened
litigation.    A “settlement” is “conclusion of a disputed or unliquidated claim, and attendant
differences between the parties, through a contract in which they agree to mutual concessions in
order to avoid resolving their controversy through a course of litigation.” Priem v. Shires, 697
S.W.2d 864, 863 n.3 (Tex. App.-Austin 1985, no writ); see also McCleary v. Armstrong World
Indus., Inc., 913 F.2d 257,259 (5th Cir. 1990) (stating that Texas courts have defined settlement as
conclusion of disputed or unliquidated claim through contract to avoid litigation). A settlement
payment is an amount paid to resolve an actual or disputed claim the employee may have against the
employer. See Lubart, 154 F.3d at 541-42; Gujda, 158 F.3d at 804-805; Ball, 163 F.3d at 309.
Accordingly, a payment made to an employee to settle actual or threatened litigation is not simply
compensation      beyond wages upon early termination of the employment relationship by the
employer. It is a payment in lieu ofprosecution.   See Lubart, 154 F.3d at 541-42; Gajdu, 158 F.3d
at 804-805; Ball, 163 F.3d at 309.

        *Ms. Williams served as general counsel for Senate Bill 1. Education, 49 SMUL. REV.901 (1996).
Mr. Jim Nelson   - Page 5                         (JC-0221)

          Further, including a settlement payment within “severance payment” in section 11.201(c)
would discourage amicable resolution of actual or threatened litigation. Texas courts, as a matter
of public policy, favor the amicable settlement of controversies because such resolution avoids the
uncertainties and often the exorbitant expenditure of time and money associated with litigation.
Transport Ins. Co. v. Faircloth, 898 S.W.2d269,280 (Tex. 1995); Elbaor v. Smith, 845 S.W.2d 240,
250 (Tex. 1992). We presume that the legislature was aware of this public policy and decisions of
Texas courts when it enacted section 11.201(c) of the Education Code. Acker v. Texas Water
Comm ‘n, 790 S.W.2d 299, 301 (Tex. 1990). And if the legislature intended to change this well
established policy, it would have done so expressly. Accordingly, we conclude that “severance
payment” as used in section 11.201(c) does not include an amount paid to settle actual or threatened
litigation.

          A payment, however, is not an excludable settlement under section 11.20 1(c) simply because
it is so described or characterized. Cf: Travelers Ins. Co. v. City of West Columbia, 482 S.W.2d 53,
55 (Tex. Civ. App.-Houston        [lst Dist.] 1972, writ refd n.r.e.) (“option agreement” treated as an
agreement to compromise and settle where that was its effect). Furthermore, a payment is not a
“settlement” simply because it is in consideration for release of “any or all claims” an employee
may have against the employer. See Ball, 163 F.3d at 309; Lubart, 154 F.3d at 542; BLACK’SLAW
DICTIONARY1379 (7th ed. 1999). Whether a compensation payment in a particular case is indeed
to resolve an actual or threatened litigation rather than a severance payment depends not only on the
language of the agreement but, by definition, on the existence of a bona fide dispute or claim.
Although no Texas case appears to have addressed the distinction between a severance payment and
a settlement payment in this or a similar context, the federal courts have done so under section
104(a)(2) of the Internal Revenue Code. The federal distinction serves a purpose similar to that
under section 11.201(c) of the Education Code, i.e., a “settlement” payment escapes the financial
burden imposed on a severance payment, which generally includes any termination payment.

        Section 104(a)(2) of the Internal Revenue Code excludes from taxable income “the amount
of any damages received . . on account ofpersonal physical injuries or physical sickness.” See 26
U.S.C. 5 104(a)(2) (1994 & Supp. III 1997). As relevant here, excludable damages can flow either
from the “prosecution of a legal suit or action based upon tort or tort type rights, or through a
settlement agreement entered into in lieu of such prosecution.” See 26 C.F.R. 5 1.104-l(c) (1999).
Under the case law, a termination payment is treated as a taxable severance payment unless
excludable as a settlement under section 104(a)(2). The employer’s intent determines the treatment.
Lubart, 154 F.3d at 541. (It is usually the employee in these cases who asserts that the payment is
a settlement payment that should not be included in the employee’s taxable income.)             The
employer’s intent, however, is a question of fact. Zd.

         To determine whether the employer intended the compensation as a settlement payment, the
federal courts have looked at both the agreement pursuant to which the compensation is paid and the
existence of a bona tide claim. See, e.g., Lubart, 154 F.3d at 541-42; Gajda, 158 F.3d at 804-05;
Ball, 163 F.3d at 308- 309; Taggi v. United States, 35 F.3d 93 (2d Cir. 1994). For instance, in Ball,
the Fifth Circuit Court of Appeals determined that a lump sum employee termination payment was
Mr. Jim Nelson    - Page 6                         (JC-0221)

a severance payment notwithstanding the employee’s claims that a portion of it was for settlement
oftort-like claims. See Ball, 163 F.3d at 309. The court grounded its holding in the following facts:
(1) At the time of the tiring and execution of the separation and release agreement at issue, the
employee had no asserted or unasserted claims against her former employer; and (2) the laundry list
of federal, state, and local claims that were released did not convert the release agreement into a
settlement of actual claims. Id. The court explained that section 104(a)(2) of the Internal Revenue
Code requires a justiciable claim and an express settlement and disposition of such claims. Broad
and generic releases as those executed by the employee in connection with her termination when no
claims exist do not fall within the section 104(a)(2) definition of settlement. Id.

         Similarly, in Lubart, the Filth Circuit Court of Appeals upheld the tax court’s determination
that a lump sum payment in return for the employee’s voluntary resignation and release of all
potential claims against the employer was a severance payment rather than compensation for
personal injury claims. See Lubart, 154 F.3d at 541.42. That a portion of the payment was
expressly conditioned on the release of “any and all” claims against the employer did not make the
payment a settlement ofpotential or future claims. Id. The court relied on the Second Circuit Court
of Appeal’s reasoning in Taggi, 35 F.3d 93, that exclusions from income are to be narrowly
construed and that parties must be prohibited from creating contrived “settlement agreements” to
avoid taxation. Lubart, 154 F.3d at 542. To prevent such contrived settlements, the courts must
require the presence of an actual or bona tide dispute. Id. Otherwise, if section 104(a)(2) of the
Internal Revenue Code were construed to encompass releases ofpotential unspecified future claims,
manufacturing favorable tax treatment would be simple. Id.

         We believe Ball’s and Lubart ‘s rationale underlying the requirement for a bona fide claim
applies with equal force in determining whether a payment is a settlement payment excluded from
“severance payment” under section 11.201(c) of the Education Code because it effectuates section
11,2Ol(c)‘s legislative purpose: discouraging          use of school district funds to compensate
superintendents for early termination of their contract. See Mitchell, 943 S.W.2d at 438 (primary
objective in statutory construction is to give effect to legislature’s intent). To effectuate that purpose,
exclusions from “severance payment” must be narrowly construed, and school districts prohibited
from creating contrived “settlement agreements” to avoid the financial accounting for costly
payments to terminated superintendents. To prevent such contrived settlements, it is not only logical
but necessary that compensations paid to superintendents involve bona tide claims or disputes.
Otherwise any amounts paid and described as a settlement of potential future claims would fall
outside the ambit of section 11.201(c), rendering it a useless measure. See id. (when construing
statute, court may consider statute’s objective and the consequences of particular construction); TEX.
Gov’TCODEAIW.~~~~.O~~(~),(~)(V             emon 1998) (same). We presume that the legislature did not
intend to adopt a useless act. LibertyMut. Ins. Co. v. Garrison Contractors, Inc., 966 S.W.2d 482,
485 (Tex. 1998).

         We do not believe that the distinction between a section 11.201(c) severance payment and
a settlement payment is that there is consideration given for a settlement payment, but not for a
severance payment. In other words, we do not believe a termination payment is a section 11.201 (c)
Mr. Jim Nelson     - Page 7                            (JC-0221)

severance payment only if it is gratuitous as argued by various briefs submitted to this oftice.3
Nothing in the ordinary definition of “severance payment” limits it to a gratuitous payment and, in
fact, it is often made in exchange for release of any claim that the employee may have against the
employer.       And, presumably, school districts do not hand out large sums of public money
gratuitously to terminated superintendents. Additionally, there was and is no need by statute to hit
orpenalize gratuitous termination payments. See id. at 485 (presume that legislature does not intend
to adopt useless acts). Gratuitous payments generally are already proscribed by article III, section
53 of the Texas Constitution prohibiting a school district from granting extra compensation to an
employee after services have been rendered or a contract entered into and performed in whole or in
part. See TEX. CONST.art. III, 5 53. Moreover, the history and objective of section 11.201(c) make
it clear that the statute was intended to reach situations in which there was consideration, namely,
superintendent contract “buyouts”: payments to superintendents to leave employment notwith-
standing the term of their contracts. See Tex. Att’y Gen. Op. No. JC-0165 (2000) at 4 (where payee
offers consideration for additional payment, there is no violation of article III, 5 53). Agreements
to leave employment, waive claims, or similar agreements are consideration for additional payments.
Id.

         Thus, in answer to your first question, we conclude that a payment in settlement of actual or
threatened litigation is not a severance payment under section 11.201(c). A payment to a terminated
superintendent described as a settlement of actual or threatened litigation is a severance payment
under section 11.201 (c) ifthere is no actual or bona tide claim. Whether a payment in any particular
case is a severance payment rather than a settlement payment will depend on the terms ofthe related
contract and factual matters surrounding it, such as the existence of an actual or bona tide claim.
Normally, this office neither construes contracts nor investigates and determines facts in the opinion
process. See, e.g., Tex. Att’y Gen. Op. Nos. JC-0165 (2000) at 1, JC-0133 (1999) at 5.

         You next ask: “Ifyour answer to question number 1 is ‘yes’, is the term ‘severance payment’
limited to amounts due under an existing contract or are all amounts paid to a departing
superintendent properly considered ‘severance payments ‘7” Additionally, you ask: “Is payment of
insurance premiums or other benefits by the district after the termination of an employment contract
with the district within the meaning of ‘severance payment’?’ Request Letter, supra, at 2.

         We have previously determined that the ordinary meaning of severance payment is broad and
that this is the meaning to be ascribed to “severance payment” as used in section 11.201(c) of the
Education Code: compensation paid by an employer to an employee beyond his or her wages upon
an early termination.   See id. at 3. This broad definition comports with the legislative intent to

          ‘Letter Brief from Lyon Rossi Scott, Attorney at Law, Bracewell & Patterson L.L.P., to Honorable John
Comyn, Texas Attorney General, at 4-5 (Dec. 17,1999); Letter Brief from Neal W. Adams, Attorney at Law, Adams,
Lynch & Loftin, PC., on behalf of Texas Association of School Administrators, to Elizabeth Robinson, Chair, Opinion
Committee, at 3 (Feb. 4,200O); Letter Brief from Jenifer C. Severinson, Attorney at Law, Texas Association of School
Boards, to Honorable John Comyn, Texas Attorney General, at 1-2 (Dec. 20, 1999); Letter Brief from Kelli H.
Karczewski, Attorney at Law, Schwartz & Eichelhaum, PC., to Honorable John Comyn, Texas Attorney General, at
5 (Jan. 7,200O). (All briefs on tile with Opinion Committee.)
Mr. Jim Nelson    - Page 8                        (JC-0221)

discourage school districts from using public funds to compensate superintendents              for early
termination of their contracts. See id. at 4. In keeping with this legislative intent, it is immaterial
what the payment is for or how it is denominated if school district funds are used to make the
payment after the employment relationship has been severed. Thus, any payment to a superintendent
beyond his or her wages upon early termination constitutes a section 11.201(c) severance payment
unless legally excluded. We are unaware ofany authority that limits the section 11.201 (c) severance
payments “to amounts due under an existing contract” or excludes payments for insurance premiums
or other benefits. Accordingly, we do not believe severance payments are limited to amounts due
under the terminated employment contract and exclude insurance premiums or other benefit
payments made after the termination as a matter of law.

         We cannot, however, determine as a matter of law that all (unspecified) amounts paid on
termination may properly be considered severance payment, Amounts paid on termination, for
example, may include a severance as well as a settlement component. They may also include
payments for accrued sick or vacation pay. See, e.g., Shea v. Wells Fargo Armored Serv. Corp., 8 10
F.2d 372, 376 (2d Cir. 1987) (accumulated vacation pay upon termination did not constitute
“severance pay” entitled to protection under Employee Retirement Income Security Act [ERISA]
because not contingent on termination or severance); Agsalud V. Blulack, 699 P.2d 17, 19 (Hawaii
 1985) (“severance payments,” which by definition are payments made on severance of employment
relationship, are not remunerations    similar to vacation, sickness, or holiday pay, which are
remuneration within employment context).

         Finally, you ask: “Are ‘consulting agreements’ with former superintendents within the
meaning of ‘severance payment,’ particularly when duties are either unspecified or consist of
providing transitional services during a period covered by the original employment contract?’
Request Letter, supra, at 2. We understand you to ask whether payments upon early termination for
consulting services are severance payments under certain circumstances.       We conclude that
payments for contrived consulting services are severance payments under section 11.201(c) of the
Education Code.

         Payments pursuant to a new employment contract are not severance payments. While the
meaning of severance payment is broad, by definition it does not include payments for continuing
employment or additional services, i.e., wages. Having said that, it is possible to imagine contrived
“consulting services.” Thus, payments to superintendents upon termination for services that are
neither expected nor rendered would be severance payments under section 11.201 (c). See, e.g., Nail
Y. Brazoria County Drainage Dist. No. 4, 992 F. Supp. 921,923 (S.D. Tex. 1998) (“[A]11 parties
involved understood that Nail’s [District’s general manager] acceptance ofthe ‘consulting’ position
was a voluntary resignation, and that Nail would not actually be required to provide any consulting
services to the District.“). In this situation, the only consideration for the additional payment is the
superintendent’s    agreement to the termination and, most likely, release of any claim the
superintendent may have against the school district. Whether a particular payment is indeed for
contrived consulting services and thus a section 11.201(c) severance payment is a factual
Mr. Jim Nelson   - Page 9                        (JC-0221)

determination based on a review of the surrounding     circumstances   and is beyond the scope of the
opinion process.

          We do not believe, however, that consulting service payments are severance payments solely
because the consulting duties are unspecified or for transitional services for a period covered by the
original employment contract. Consulting services may be expected and provided notwithstanding
that they are unspecified or unclear. It may be that the services will be provided as needed.
Similarly, transitional services by the outgoing superintendent may be necessary and provided to
facilitate the transition from one superintendent to another. That the period of the transitional
services is covered by the original employment contract would not in itself negate the validity or
necessity for those services.
Mr. Jim Nelson    - Page 10                      (X-0221)

                                        SUMMARY

                          Under section 11.201(c) of the Education Code, “severance
                 payment” is compensation paid to a superintendent beyond his or her
                 wages upon early termination of the employment relationship by a
                 school district.    A payment, however, in settlement of actual or
                 threatened litigation is not a severance payment under section
                 11.201(c). A payment to a terminated superintendent described as a
                 settlement of actual or threatened litigation is a section 11.201(c)
                 severance payment if there is no actual or bona tide claim. Section
                  11.20 1(c) severance payments are not limited to amounts due under
                 the terminated employment contract and do not exclude insurance
                 premiums or benefit payments made after the termination as a matter
                 of law. Payments for contrived consulting services are section
                  11.201(c) severance payments.       Whether amounts paid in any
                 particular case are severance payments will dcpendon the termination
                 agreement and the surrounding factual circumstances.

                                               Attorney General of Texas

ANDY TAYLOR
First Assistant Attorney General

CLARK RENT ERVIN
Deputy Attorney General - General Counsel

ELIZABETH ROBINSON
Chair, Opinion Committee

Sheela Rai
Assistant Attorney General - Opinion Committee