5 considerations for employer layoffs/reductions in force

Blog Post

With the ups and downs of today’s economy, a company must be prepared to take action, if necessary, to downsize or eliminate sectors of their workforce. During what is an already difficult process, it is important that employers take certain steps to mitigate and minimize any additional risk. 

Following are five tips for employers to consider when faced with an impending layoff or reduction in force (RIF): 

  1. Maintain objectivity in selection criteria - It is imperative for employers to rely on objective, measurable criteria in determining how many and which employees will be subject to a layoff or RIF. Elimination of actual or perceived bias is critical to ensure compliance with federal, state and local laws and prevent potential future litigation. An employer contemplating a layoff or RIF should develop business-related criteria for making selections and apply that criteria in a consistent manner.

    Indeed, the U.S. Equal Employment Opportunity Commission (EEOC) recommends that employers review their selection process(es) to determine “if it will result in the disproportionate dismissal of older employees, employees with disabilities or any other group protected by federal employment discrimination laws.”

    To do so, the EEOC suggests that employers undertake the following three-step analysis:

    1. Create a list of employees who will be laid off/terminated based on an employer’s layoff/RIF criteria.
    2. Determine whether certain groups of employees are affected more than other groups (for example, determine whether more female employees are affected than male employees, compare the percentage of female employees scheduled for layoff/RIF to the percentage of female employees in overall workforce).
    3. If certain groups are affected more than other groups, determine if the layoff/RIF selection criteria can be modified to limit the affect on those groups, while still meeting business needs.
  2. Comply with federal, state and local notice requirements - The Federal Worker Adjustment and Retraining Notification Act (WARN Act) requires an employer to provide 60 days written notice to employees, applicable governmental agencies, and union representatives of the  employer’s  intention to lay off more than 50 employees during any 30-day period as part of a plant closing. The WARN Act also requires employers to give notice of any mass layoff that does not result from a plant closing but will result in an employment loss of 500 or more employees during any 30-day period or employment loss for 50-499 employees, if they make up at least 33 percent of the employer's active workforce.

    Although there are some limited exceptions to the WARN Act’s notice requirements, it is important for employers to not run afoul of its provisions. Employers who violate the WARN Act are liable to each unnotified employee for back pay and benefits for up to 60 days during which the employer violated the WARN Act. Employers are also subject to stiff civil penalties for failure to notify implicated government agencies of plant closings or mass layoffs.

    Furthermore, even if an employer is not subject to the federal WARN Act, some states and localities have enacted their own versions of the law, or “mini-WARN Acts,” with similar notice requirements for plant closings and layoffs and similar penalties. Because these “mini-WARN Acts” carry similar penalties for employers who run afoul of their provisions, it is important for employers to ensure they are in compliance.

  3. Ensure prompt payment of final wages - Any time an employee separates from his or her employer, whether by resignation, termination, layoff or RIF, employers should ensure the employee timely receives his or her final paycheck in accordance with company policy and state/local laws. 

    Although there is no federal statute requiring employers to pay separated employees their final wages immediately, some state and local statutes may require immediate payment or, more commonly, payment by the next regular pay day. State and local laws may also dictate what constitutes an employees “final wages,” including whether employers are required to pay out unused sick, vacation or other paid time off benefits.

    Employers should, at minimum, review applicable state Department of Labor websites and guidance as well as consult an attorney to ensure compliance as violations of state wage payment statutes can result in penalties and fines, including in some instances, treble damages payable to separated employees.

  4. Offer valid severance agreements - Employers who are able to offer financial assistance to laid-off employees or those subject to a RIF should condition the employee’s receipt of any form of severance payment/package on the employee’s execution of a severance agreement and general release. It is key, however, for employers to use valid and enforceable agreements that insulate the employer from potential future risk.

    In addition to necessary contract elements (such as, providing consideration in return for a release), agreements should include appropriate release language and notice to employees waiving federal age discrimination claims. Under the Old Workers Benefits Protections Act (OWBPA), when an employee is subject to a RIF of two or more employees, employees age 40 and over must receive 45 days to consider an agreement and release as well as seven days to revoke after signing.  In addition, the employer must provide the employees with detailed information about the RIF in writing including:

    1. The class, unit or group of individuals subject to the RIF
    2. The eligibility factors for the RIF
    3. The job titles and ages of all individuals eligible for or selected for the RIF
    4. The ages of all employees in the same class who were not eligible or selected for the RIF.

    A comprehensive severance agreement should also include confidentiality and non-disparagement provisions as well as a modification clause that confirms that the agreement does not modify any non-solicitation and non-compete agreements previously entered into between the employer and employee.

  5. Communicate effectively - A layoff or RIF can be emotional - not only those who lose their jobs but for remaining employees. Accordingly, it is important to communicate effectively with those subject to the layoff/RIF, remaining employees, and in some instances, the general public.

    When informing employees that they are subject to a layoff/RIF, it is important for employers to be direct and concise, yet sensitive to the effect of a potentially unexpected job loss. It is important for the person delivering the message to the separated employee to be honest, authentic, and empathetic.

    Remaining employees may have a number of concerns and fears after learning of a layoff/RIF which could affect their personal productivity and overall company morale. Accordingly, it is important for employers to have timely and transparent communications with remaining employees and staff in order ease their minds and ensure continued engagement.

    Finally, in addition to the federal and state notice requirements discussed above, it is important for employers to have judicious communications with third parties about a layoff/RIF. Proactively informing the media, customers and/or vendors allows employers to manage the message and prevent the dissemination of misinformation. 

Complying with the legal requirements and managing the risk factors related to a layoff/RIF takes thoughtful consideration, advance planning, and appropriate involvement of legal counsel. Employers contemplating this difficult step can reach out to the author or their McDonald Hopkins attorney for assistance.

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