Tips for employers on successfully navigating layoffs

September 15, 2006

Excerpted from Louisiana Employment Law Letter, written by attorneys at the law firm Jones Walker

by Jane H. Heidingsfelder

For businesses faced with the need to reduce costs or reorganize, a reduction in force (RIF) may be a necessary part of the solution. Firing an employee is never easy, and when business or other factors compel letting a group of employees go, it can be particularly unpleasant for all involved.

Employers might think that layoffs, or the potential for them, shouldn't come as a surprise to employees and shouldn't be particularly risky for employers since most employment relationships are at will, meaning that employees aren't guaranteed employment for any specific period of time.

Layoffs can generate feelings of disloyalty and distrust, however, particularly when the employees don't see it coming and when they didn't violate any rules or engage in any conduct that would otherwise be grounds for firing. And if layoffs aren't handled as well as they can be, those feelings can cause employees to file lawsuits.

Frivolous or not, lawsuits always require an investment of money, time, and emotional energy for the company and management. Because how employers handle layoffs can affect the risk of a lawsuit and liability, here are a few practical pointers for minimizing that risk.

HR Executive Special Report: Reducing Risk for Reductions in Force

Communicate with employees
In most situations, the circumstances that compel a company to reduce its workforce don't arise overnight. And they usually aren't entirely secret. If there's a downturn in the economy, a planned reorganization, or a prospective business deal that will lead to a layoffs, there's usually a point at which the company can let employees know (without revealing confidential information or compromising the company's plans) that there may be significant changes affecting the number of jobs or employees.

Employers sometimes fear communicating that type of information, thinking that it could affect productivity, loyalty, and morale. Studies have shown, however, that employees value employers that keep them informed, particularly of developments that could affect their jobs, and that that type of communication actually fosters loyalty and morale (which also affect productivity).

Additionally, employees who know of potential changes are less likely to feel hurt or surprised if they're included in layoff. Employers can always use tools like retention bonuses or other incentives to keep employees on board -- before or after layoff decisions are announced- -- through a target date.

Also keep in mind that depending on the total number of employees and the number and timing of employment losses, federal law may require formal notice to employees as much as 60 days in advance of any layoffs. Some states also have notification laws for layoffs. So employers should always consult with their labor attorney to determine whether any such requirements will be triggered.

State-by-state comparison of 50 employment laws in all 50 states, including mass layoff laws

Use objective criteria for RIF decisions when possible
Using objective criteria when determining which employees will be affected by a RIF also can reduce employers' legal risk. Objective criteria involve less room for interpretation or dispute and are almost always easier to prove in court than subjective criteria.

For example, including employees who have been on the payroll for less than one year (an objective criterion) is more clear-cut than including employees who "aren't a good fit with the company." An affected employee will be less able to challenge or dispute his date of hire. He may disagree, however, with the assessment that he's not a good fit, and in fact, he may be able to show a jury that the company's perception is wrong or at least that reasonable minds could differ about whether he's a good fit.

Further, some courts have stated that reasons for employment decisions like "not a good fit" are too generalized or vague for a company to be able to rely on when defending itself against a discrimination claim.

Objective criteria include length of employment, specific productivity measurements, possessing certain measurable or identifiable skills, such as those learned through the completion of a course or training program, education, and similar specific, measurable qualities.

Courts have consistently determined that such criteria, when unrelated to factors like gender, race, and religion and based on business reasons, are legitimate justifications for employment decisions.

Of course, there may be times when it's necessary to use subjective criteria in the decisionmaking process. Keep in mind that subjective criteria may be scrutinized more closely than objective criteria. So if an employer must rely on subjective assessments when making layoff decisions, it should ensure that it avoids using generalized, nonspecific terms and cite fact-specific examples to support any decisions based on subjective criteria.

If an employee has been written up on two occasions for insubordination, for example, an employer should be able to point to the specific incidents that led to the write-ups (e.g., on a specific date, the employee refused to follow the supervisor's instruction to complete paperwork by the deadline).

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Be truthful when giving the reasons for termination
While having objective criteria for terminating employees is beneficial, employers should make sure the reasons they communicate to employees are accurate and legitimate. In the context of a layoff, it's important for an employer to document the criteria it used for determining who will be affected by the layoffs and to apply the criteria consistently. It's also important to let employees know that a uniform set of criteria was applied to all similar employees in the same way.

When employers try to sugarcoat the reasons for an employment decision in an attempt not to hurt feelings or offer no reasons at all, it can adversely affect their ability to defend themselves if they're called on in later litigation to explain the reasons for their decision.

Don't be anything less than honest about the reasons for termination or for implementing layoffs. That doesn't mean employers shouldn't be tactful, and it doesn't mean they should belabor the point. Employers should make sure they can articulate a legitimate business reason for their decision and that they can support it with objective and specific facts, and be clear and concise when communicating it to the employee.

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Follow policies and collective bargaining agreements, if any
If companies have internal policies or a collective bargaining agreement that governs the criteria or procedures for a layoff or for terminating employees generally, they should make sure to follow the criteria and procedures consistently for all employees. Failing to conduct layoffs in accordance with a company's own criteria and policies may result in inconsistent decisions and, thus, a discrimination claim.

Severance pay
Federal law doesn't require severance pay for private employees. If an employer has a policy or uniform practice of paying severance, however, it needs to follow its policy and pay severance to eligible employees. If a company doesn't have such a policy or practice, it can still decide to offer severance or separation pay for any particular reduction in force.

Severance pay can be beneficial by helping ease employees' transition into new employment and could create goodwill and potentially lessen the likelihood of employees filing claims against their former employer. Remember that without a valid and enforceable waiver of rights by the employee, however, there's no guarantee that an employer will avoid having to defend itself in a lawsuit.

If a company decides it would like to offer departing employees money in exchange for a waiver of rights, it's important to understand that it must offer the employee something over and above that to which he's already entitled. So if the employee is entitled to severance under the company's policy or practice, it would be required to give him something additional -- in the legal world, something called "consideration" -- to make sure the waiver of rights will stick.

Additionally, if an employer is offering consideration for a waiver from one or more employees who are 40 or older, the Older Workers Benefit Protection Act (OWBPA) requires that those waivers meet certain requirements. Employers always should consult with a labor attorney to help prepare a valid and enforceable waiver and to ensure that any legal requirements are satisfied.

Audio Conference: Severance Agreements: Craft a Plan That Buys Peace, Not Litigation

Parting words
Once a business has made its layoff decisions and communicated them to employees, don't forget to make sure that they're paid all earned wages in their final paychecks -- and that they're paid timely.

Make sure to provide employees with notice of the right to elect continuation of group health coverage and other applicable benefits. If an employer's policies and procedures require any other type of posttermination notices, communications, or benefits, be sure to follow through with them.

Planning and preparation are required anytime a company has to part ways with any employee. Reducing the workforce by a number of employees can present additional issues and require even more time and thought to make sure not only that the employer complies with the company's legal obligations but also that employees are treated with dignity and respect.

Lack of communication and follow-through is often cited as, and traced to, the source of disputes when an employee is fired. By carefully mapping its plan and keeping employees in the loop, employers stand to avoid many of the minor conflicts that often lead to needless litigation.

And by going the extra steps of focusing on objective criteria, ensuring well-documented, legitimate, nondiscriminatory reasons for the decisions that are made, and involving its labor attorney for compliance with federal and state law, employers stand a much better chance of avoiding litigation altogether when attempting to navigate its way through layoffs.

Check out the HR Executive Special Report - Reducing Risk for Reductions in Force. This 56-page report includes information on what you need to know before a RIF is initiated, chosing methods to determine which employees should be included in a RIF, deciding how to communicate with workers, understanding the federal WARN Act, dealing with benefits for displaced workers, downsizing older employees, and handling voluntary reductions in force. The report is free for subscribers to all 50 State Employment Law Letters and is available for purchase by non-subscribers for $97.

Copyright 2006 M. Lee Smith Publishers LLC. This article is an excerpt from LOUISIANA EMPLOYMENT LAW LETTER . LOUISIANA EMPLOYMENT LAW LETTER does not attempt to offer solutions to individual problems but rather to provide information about current developments in Louisiana employment law. Questions about individual problems should be addressed to the employment law attorney of your choice. The State Bar of Louisiana does not designate attorneys as board certified in labor law.

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